Lisa Henderson never thought she would get divorced, but she planned for it anyway.
Ever since she started working, the now 46-year-old Toronto-based lawyer contributed to a work place pension plan. She also saved as much money as she could. At one point, a change in her husband’s career forced her to withdraw savings from her registered retirement savings plan (RRSP). But she still had enough to ensure that whatever happened, she and her two children’s future would remain secure.
In 2015, Henderson split from her husband after 16 years together. “I knew I could support my children,” she says. “My financial future is exactly what I thought it would be.”
After the divorce, Henderson managed to buy a new home in her children’s school district with her savings - and she knows she’s an anomaly.
All too often, people who divorce in their forties, fifties and sixties are unprepared financially. Some are caught off guard by how little they receive in terms of assets, property and monetary payment following the dissolution of their marriage. While others may not have a solid handle on their overall financial picture. Many have spent years living off two incomes, where now they will only live off one. Some have also relied on their spouse’s financial advisor to manage their money, which they may no longer be able to do.
Finding supportive advisors
Many people seek guidance from their advisors. Melanie Johannink, a Sun Life Financial advisor based in Bolton, Ont., says several of her clients ask her how to put all of the confusion behind them so they can focus on putting their financial health back on target. Between dividing assets and depleting your savings, it’s important to take a pulse on the retirement savings.
Johannink explains that the newly divorced need to take a deep breath and recalibrate before making any decisions. The first step, she says, is to find a financial professional who can help them–someone who isn’t also working with their ex-spouse. She emphasized in Henderson’s case, her financial future no longer had two sources of income, likely only one income. And yet her life still goes on. Her financial future today, and into retirement, will look completely different.
Be honest about your finances
The next step is to open up. “Transparency is important,” she emphasizes. “Be very honest about everything you have.” The more honest you can be, the more the advisor can help.
If monthly cash flow is an issue, you are not alone, and your advisor will need to know this. It may mean shifting from a high interest-bearing credit card to a lower interest-bearing credit card to help with the difficult times. You need to be creative.
Then, fill in any financial gaps, especially with life, critical illness or long-term care coverage. If you were relying on your spouse’s work plan for coverage, you’ll need a new product.
Johannink says many people are unaware that their medical benefits may stop 60 days after a divorce if your ex-spouse leaves their current group benefit plan. They may need to negotiate those benefits in a divorce settlement to ensure that their ex-spouse continues to pay for them if that is the case.
“Something that gets overlooked is taking out a life insurance policy on your ex-spouse,” Johannink says. “It simply ensures you have spousal and child support payments covered if something happens to them. You’ll receive a tax-free death benefit that you can use as you please.”
Consider long-term care insurance
What about later in life separations? “Long-term care insurance can also be a good investment as divorced people may not have the same support as they did pre-divorce,” says Johannink.
“If your net worth is under $500,000, and you’re heading into your fifties, you’ll want to consider long-term care insurance,” she says. This will pay for accommodations in a care facility or at home if you become unable to live on your own.
Vulnerable in divorce
In many cases, people are reaching out to financial advisors, financially-savvy friends and other professionals to help them pick up the pieces and get their lives back on track. And many people do need help.
Fortunately, people are asking. Saijal Patel is the founder and CEO of Saij Elle, a consultancy that helps women become empowered about their finances. She holds regular workshops to help women manage their finances. “Most are well-attended,” she says.
The first piece of advice she gives is to be aware of your spouse’s finances. This goes for anyone, regardless of gender or background. Patel relates that one client recently discovered her now ex-husband had completely wiped out their joint assets. “She thought he was fine,” she says. She subsequently divorced him.
Protect your finances in a divorce
“What’s also key,” says Patel, “is adopting a business mindset for divorce proceedings.” All too often, she explains, clients will tell her they “just want to get through it.” Without focusing on specific areas to query – such as pensions and RRSPs – they may be leaving money on the table.
Henderson took a creative approach to splitting the proceeds from her home and pension. By doing this, she solved a financial conundrum: How to ensure she gets child support payments while minimizing damage to her pension.
“We figured out how much I would owe him from my pension and what I would be owed in child support,” she says. “And we subtracted what he owed from the pension.” By making a one-time payment, she was able to limit the damage to her pension. Plus, with child support paid for, her ex-husband could afford a home.
“We don’t have to write a cheque every month and I have job security and a good income,” she notes. “We also now get along extremely well.”
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