As anyone who has been through a messy divorce can attest, with goodwill eroding faster than the lawyer bills are stacking up, you just want to get things over with. If that means giving up something you were feverishly holding on to, so be it.
But there are pitfalls to arbitrarily negotiating a deal to trade assets – a private pension for a family home, for example – or to abandon them, without recognizing the future financial implications of that decision, say lawyers, who are now recommending that clients seek advice from a financial planner before the mediation process.
“The law sets out what child support should be, how property and assets should be legally divided,” Ottawa family lawyer Adriana Doyle says. “But the majority of family cases have some component of financial and tax issues that can be complex, challenging and require advice outside of the legal profession. In these situations, the financial adviser is priceless.”
Keith Adams, 42, learned this lesson the hard way. He served his wife divorce papers in 2010. After negotiating privately over the properties and businesses they owned in Calgary, child support for their two teenage daughters and spousal support, the couple found themselves in mediation and arbitration.
“There was no light at the end of my tunnel, the lawyer bills were racking up,” Mr. Adams says. On the recommendation of a friend, he went to an independent financial adviser.
“She showed me a number of different options and explained how capital-gains taxes work on properties that are not the primary residence,” says Mr. Adams, who, as a stay-at-home dad for a number of years, was on the receiving end of spousal support. “She also went through various spousal support scenarios, and showed me the future values of RRSPs.”
Armed with information, Mr. Adams and his wife were able to come to a mutual agreement earlier this year.
“People have a lot more control over the final result when they negotiate the process themselves outside of court,” Ms. Doyle says. “The financial adviser can advise on how to roll over pensions to avoid tax repercussions and help couples understand how to plan for the future with their new income scenario.”
They can also help to level the playing field going into negotiations, says Blair Corkum, a chartered accountant and financial divorce specialist in Charlottetown.
“There is usually one person in the couple that has more education pertaining to finances and that’s the start of the imbalance,” says Mr. Corkum, who has been specializing in divorce financing since 1997. “And it’s a hugely emotional time for people, so they’re often negotiating property without being aware of how it will impact their financial future.”
That was true for Wendy Noble, when she was presented with divorce papers 14 years ago. A stay-at-home mother to four children for more than 20 years, Ms. Noble had been completely reliant on her husband’s income. Although she had always managed the household finances, she admits that she did not have a clue about the value of her husband’s work pension or share options.
“At that time in my life, I had no idea what a financial planner was,” she says. “My lawyer tried to help with the financial stuff, but all the while the bills were adding up. At some point, I just threw my hands up in the air.’ ”
In her mid-40s, Ms. Noble launched a professional career and started her own retirement savings.
“It wasn’t until a few years ago that I sat down with a financial planner,” she says. “Some of the advice confirmed what my gut had told me for years, but it also gave me an entirely new perspective on how to invest the money I had saved for my own retirement. I wish I’d known all this 14 years ago.”
Where things get complicated
Splitting assets during divorce can be relatively straightforward if the couple have no children. There are a few areas where things can get complicated in the absence of professional financial advice.
Particularly for those who divorce later in life, policies that are not jointly owned can be cancelled or altered by one party. “The insurance company will only disclose policy information to the owner,” says Wendy Olson-Brodeur, a financial divorce specialist and divorce mediator in Calgary. “Part of the divorce agreement should ensure joint ownership of the policy. Otherwise, if the owner stops paying or removes the wife and children as beneficiaries, they may not know, and a person who’s older may find they are uninsurable.”
Private pensions and work options
While Canada Pension Plan benefits are split evenly under the law and are non-negotiable, private pensions and work options, such as shares, can be more complicated to value.
Properties other than the principal residence are subject to capital gains when there is a sale.
In the case where one spouse pays a lump sum to the other as part of asset division, or where funds are being transferred from registered funds, a financial adviser can help to find appropriate tax shelters for the investments.
“People need to make sure their divorce settlement accounts for both present and future needs,” says Blair Corkum, a financial divorce specialist in Charlottetown.
By the numbers
41 per cent: The number of marriages in Canada that end in divorce.
33 per cent: The proportion of divorce cases in family law courts.
21 per cent: The number of divorce cases that last more than two years. This figure has risen 6 per cent between 2006 and 2011.