[February 2009]

When the ink is dry on the settlement agreement, the newly divorced face another battle: updating myriad documents to reflect their new marital status.

“A lot of the time, people think the things they’ve agreed to do as part of the settlement will magically get done by fairies,” says Cathie Hurlburt, a certified financial planner, registered financial planner and financial divorce specialist with Integrated Planning Group, an affiliate of Assante Financial Management Ltd. in Vancouver. “But just because they’ve decided to equalize the RRSPs, for example, doesn’t mean it’s going to happen automatically. There’s a separate document to sign.”

In many cases, one party will agree to carry life insurance and make the former spouse the beneficiary of a fixed amount (to cover spousal or child support in the event of his or her death, for example) — often requiring the purchase of new coverage. But the advisor who guided the client through the divorce can’t automatically take on this business.

“In a collaborative situation, continuing to work with either party post-divorce is basically a non-starter,” says Colleen O’Connell-Campbell, a CFP and certified divorce financial analyst with ScotiaMcLeod Inc. in Ottawa. “You’ve agreed to work as a neutral advisor to both parties as part of the collaborative process. So, you’re not able to provide individual advice to either party after the settlement is complete.”

On the other hand, advisors who work as an advocate for one spouse during the divorce may continue working with that client post-settlement.

Instead, O’Connell-Campbell provides collaborative clients with a checklist of issues that need to be addressed post-divorce. Medical insurance, pension plans, property ownership and banking information, among other items, must be updated to reflect the change in marital status. And she strongly recommends the clients seek the services of another financial planner.

Whether you’re working with an existing client or one that has just walked in the door, these tips will help you to get newly divorced clients back on their feet:

> Wills. Updating the will, including changing beneficiaries and powers of attorney, is a pressing concern following a divorce. This can extend to documents such as life insurance policies, RRSPs and real estate titles.

O’Connell-Campbell notes that if there are children under the age of majority, it’s important to create a trust for them when a new will is drawn up and to ensure that beneficiaries under documents such as life policies, are properly noted. A trust for young adults is also often a good idea. “Oftentimes, even someone as old as 25 might be considered too young to be a direct beneficiary on a life policy,” she says.

Appointing a trustee who is not a family member may be the best alternative in the case of divorced or separated parents. “I have one client who doesn’t speak to her family on a regular basis,” says Hurlburt, “and who would never name her ex-husband as a trustee for her children’s money.” However, she notes, in more amicable — albeit rarer — cases, two ex-spouses may actually appoint each other as trustees. (For more on trustees, see Investment Executive, January 2009, Building Your Business or visit www.investmentexecutive.com.)

> Guardianship. Re-evaluating whom to deem legal guardian for the kids is also a pressing concern and not always as straightforward as you might think, says Doug Lamb, a CFP and chartered accountant with Spera Financial Inc., an affiliate of Dundee Private Investors Inc. in Toronto. “If one ex-spouse has sole custody and the other ex-spouse is an unfit parent, the question of who should be named as guardian can be a messy one,” Lamb says. “They have to talk to their lawyers about this.”

> A New Financial reality. Finan-cial planning, in many cases, can help newly divorced clients feel empowered about their lives again. “If someone has a detailed plan that outlines the new economic realities and alternatives,” says Lamb, “they feel more in control.”

This is especially important for those clients who didn’t choose to end their marriages, he adds.

“While only a lawyer can tell a client what he or she is entitled to, a financial planner can help the ex-spouse understand exactly what the settlement means,” Lamb continues. “Clients want to know whether they can afford to send the kids to summer camp and whether the lifestyle they’re leading now is going to make them a poor person come retirement.”

@page_break@O’Connell-Campbell finds that her newly divorced clients commonly hold one of two misconceptions when it comes to their new financial picture: “They either think things are a lot worse than they really are, or a lot better.”

Adds Lamb: “Someone may receive the best settlement in the world, but his or her lifestyle may still need adjusting. I had one client who wanted to buy a townhouse and I said, ‘Well, that’s great, you have the cash from the settlement to do it. But the odds are that in three years you’re going to use up all your equity and be completely broke.’”

A little armchair psychology can also help. “I tell clients to look at what’s important in life,” says Lamb. “If you’re in an unhappy relationship, it eats away at you. You’re much better off to have a reduced lifestyle but be able to sleep at night. I’d rather be happy and eating a hamburger than miserable and eating steak.”

> Remarriage. If anything should be learned from a messy — and costly — divorce, it’s not to make the same mistake twice. “There’s often much more openness in subsequent relationships,” says Hurlburt. “Most people learn a few things about talking about money while they’re getting divorced. So, they keep those skills and use them the next time around. It’s not nec-essarily how you want to get that education, but it works.”

Lamb, however, has seen some clients jump from one mistake to another. “The euphoria of a new relationship can overshadow the importance of dealing with planning issues,” he maintains.

Assets owned prior to a new marriage that are not co-mingled are protected in divorce. But that’s not the case for the matrimonial home; even if purchased by one spouse prior to the relationship, it eventually becomes a joint asset. “I had a situation in which the couple got together and he moved into her house,” Lamb says. “He had a lot of assets from his first marriage and all she had was her house, which, over time, became a joint asset.”

The couple eventually split, and he was entitled to half of her house while his assets were protected. “She was devastated,” Lamb recalls.

Clients purchasing a home with a spouse should consult their lawyers to discuss whether to register the property under “joint tenancy,” in which case one spouse would automatically inherit the other’s share of the home on death, or “tenants in common:” in that case, the deceased spouse’s share goes to their beneficiaries as set out in their estate.

Marriage and domestic contracts can be important for those already divorced or those entering into a relationship with a divorced person. “If there’s any co-mingling of finances with a second partner, you need to talk to your clients about protecting themselves and their family, first and foremost,” says O’Connell-Campbell. IE