Darcie Crowe understands why family, friends and even divorce lawyers come ahead of her in the queue when freshly separated spouses pick up the phone following a split.
Still, the Vancouver-based senior wealth advisor with CG Wealth Management asks clients to tell her about this kind of material change as soon as possible.
“People don’t always realize the true impact of a divorce on their financial circumstances until much further down the line,” said Crowe, who is also a certified divorce financial analyst (CDFA). “The earlier you begin these conversations with your advisor, the earlier you can begin to understand what these changes look like, and can make any adjustments that may be required.”
Timely notice of an impending divorce is particularly important during periods of market volatility. “If we’re advised early, we can add liquidity to a portfolio and make it more conservative, so that you’re not in a situation a year later where you’re forced to sell at the wrong time in the market cycle,” Crowe explained.
Even in the midst of an economic boom, it’s hard to avoid taking a financial hit in the immediate aftermath of a divorce, said Eva Sachs, a Toronto-based fee-only divorce financial consultant who also holds a CDFA designation.
“You’re taking one household with a certain amount of income, and now you’re trying to run two households with the same money, which is really challenging,” she said.
One or both parties usually need to free up funds for real estate, either to buy their former partner out of the matrimonial home, or to purchase somewhere new to live, Sachs added.
But recent fluctuations in capital markets, combined with the downturn in the housing market, have added a fresh wrinkle to the complex process that determines the size of the equalization payment owing from the spouse whose assets grew more during the span of the marriage.
According to divorce laws, valuations for property division are tied to the date of separation, rather than the date a divorce is granted or a settlement reached. Those latter dates can often be months or years later, depending on how hotly the parties contest the matter.
“If the separation date was six months ago, that sets a certain value on the matrimonial home, but the reality today is probably quite different,” Sachs said.
The same goes for RRSPs or — taking an extreme example — investments in cryptocurrencies such as Bitcoin or Ether, which have lost two-thirds of their value in the past year.
Former partners can agree to delay a sale or stay invested together until markets recover or stabilize. But “generally, that’s on a short-term basis,” Crowe said. “Even if the relationship is cordial today, it could change a week or a month from now.”
Sachs works with clients to create financial projections and forecasts based on their updated income, asset and liability levels. Longer-term, the outlook often varies depending on their age.
“If you’ve transferred a large amount out of an RRSP or a defined-benefit pension, then you have to think about how you catch up in terms of those payments. If you’re older, it’s hard because you’ve got less time to make up the difference.”
For those who deferred to a former spouse on money matters, it’s often the first time they have taken an active role in their finances, Crowe said.
“Overall, you will want to evaluate the suitability, risk, liquidity and asset allocation of the portfolio to ensure it is still aligned with your evolving goals and objectives,” she said. “Just having the conversation can be a really beneficial process for someone who is scared about their financial security after divorce. Getting into a position where you can make educated decisions about your financial future is a great confidence boost.”