According to a report by Statistics Canada in 2008, just over one-third of all marriages in Canada ended in divorce, with 71,269 finalized in 2005 alone.
Divorce is about many things: the loss of love and trust in a partner, shattered dreams and plans, raising children and making adjustments to lifestyles – and yes, money.
Faced with so much emotional turmoil, it’s no wonder clients going through this process need help with the financial consequences of divorce. But if both parties are clients of a particular financial advisor, that professional needs to be mindful of the conflict of interest advising both the husband and wife can present for him or her.
The solution is to send the couple to a financial divorce professional, who helps the couple through the separation and divorce process, and then hands the clients back to their financial advisor.
The role of a financial divorce professional is to assist the separating couple and their lawyers by conducting a comprehensive assessment of the divorcing couple’s financial affairs, including assets, debts, cash flow and insurance.
As part of the divorce team, a financial divorce professional provides support for the lawyer and client or becomes a member of the collaborative team.
Specifically, he or she performs the following tasks:
Divorcing clients need all the help they can get to get through the painful process of separation.
The best possible solution includes a sound understanding of their financial affairs. They need insight into the pros and cons of different settlement proposals to ensure fair and realistic settlements for the family.
In this regard, the financial divorce professional can provide valuable insight and can help the separating couple and their lawyers avoid the common financial pitfalls of divorce.
When working as part of a collaborative team, it’s essential to establish proper protocol to maintain the highest level of professional respect and communication between all professionals and clients. Typically, collaborative lawyers will engage a financial divorce professional after an initial meeting with their clients.
At first, clients may not be receptive to an additional professional; they may view this as an added expense to an already expensive process.
We recently experienced this type of uncertainty from clients who hired us based on their lawyer’s recommendation. In this particular case, we added value at several points in the settlement process.
First, we were able to assist the clients by showing them how the wife could draw funds from her RRSP under the Lifelong Learning Plan to assist in her education upgrading.
We also helped each of the parties understand how much they could afford as a mortgage and ultimately, what price range they should be looking at in houses.
And at one point, when the couple was stuck on the value of a dining room suite when completing the Net Family Property statement, we helped them understand the actual cost of arguing over the value of furniture versus what their estimated value of the suite was. In other words, pick your battles. Once they saw it in this light, they were able to agree on a price. In some cases, it’s not that simple and we have to call on an expert such as a Real Estate appraiser to provide an opinion on the value of a cottage, etc.
When the settlement was reached in this case, the clients commented on the value a financial divorce professional added not only with respect to financial expertise, but also in bringing a neutral voice to the meetings.
They felt we had worked for both of them and had provided powerful information in an understandable manner so they could make informed decisions. The lawyers echoed their comments.
A common scenario with clients who are separating is where one spouse would like to keep the family home and the other his or her pension. We had a collaborative case like this recently where the couple separating had been married for over 15 years.
When their first child was born, the couple had made a family decision: The husband would work part-time so he could be home more with the children, while the wife would carry on with her career in a large corporation.
In the separation process, the husband wanted to keep the family home because of the children and the wife wanted to keep her pension. Based on the net property statement (this takes into consideration the value of all the assets minus liabilities including taxes), this scenario saw the husband owing the wife an equalization payment.
When we sat down with the couple to review the outcome of this scenario, they were both somewhat shocked. The husband had no idea that according to the numbers, he would have to make an equalization payment to his wife; he thought the value of her pension would far outweigh the value of the house.
We also showed them what each of their financial lives would look like in the short term and 25 years down the road, based on this scenario. As it was, the wife would be fine: indeed, she would have
sufficient cash flow and a substantial net worth.
The husband, on the other hand, would be destitute at age 67, would have to sell the house and make major adjustments to his lifestyle. Our report brought on a major shift in the negotiations toward a divorce settlement: The wife didn’t want to see the father of her children destitute and asked us to run another scenario, removing the equalization payment and reducing the duration for spousal support.
At this point, the couple really started to negotiate for the best possible outcome for their family as a whole. A few more meetings and scenarios later, a settlement was reached.
In the end, the couple’s lawyers had offered them support and sound legal advice while we, as financial divorce professionals provided them with an equally valuable kind of support—our neutral and unbiased analysis of their financial situation.