copyright © 2007 institute for divorce financial analysts dollars and sense of divorce what...

Copyright © 2007 Institute for Divorce Financial Analysts

Dollars and Sense

of DivorceWhat financial advisors need to know.

Presenter: Diana Shepherd, CDFA™

Copyright © 2007 Institute for Divorce Financial AnalystsCopyright © 2007 Institute for Divorce Financial Analysts

SOME STATISTICS

Effect of no-fault divorce (1985) 35% of first marriages and 41% of second

marriages end in divorce More than half of all common-law unions

break down within five years 70,000+ divorces granted annually in Canada The divorce rate for Canada is 38.3 per 100

marriages Quebec has the highest divorce rate in Canada: 49.7 Newfoundland and Labrador has the lowest rate: 17.1


Three Sources of Money in Divorce

Family Property Spousal Support Child Support


Family Property

• Each party to a marriage is entitled to 50% of the value of property gained during the time of the marriage

• This is not the same as 50% of each asset acquired during the marriage

Although it is ultimately up to the lawyer to advise on property rights, as a financial planner, you should be aware that:


Spousal Support

• Taxable to the receiving spouse

• Tax deductible to the paying spouse

• Generally calculated on the difference between the two spouses’ income

• No specific rules. However, there are Spousal Support guidelines that many lawyers and judges use.


Child Support

• Neither taxable nor tax deductible• Based on which parent has custody for

60% or more of the time• Offset against each spouse’s income• There are strict tables that outline the

amounts payable• Covers food, clothing, and shelter


Child Support (Continued)

• The amount of support does not cover “Section 7 expenses”: extra expenses for the child that are usually covered by percentage of income

• Support is paid until the child is no longer in school (including a first undergraduate degree)


Family Property

• Ownership• Division


Matrimonial Home

Other Assets


FAMILY PROPERTY

1. Liquid assets

2. Real Estate

3. Businesses

4. Furniture

5. Collections etc.

6. Pensions


DIVIDE PROPERTY

1. 50/50 if owned or used2. Exceptions3. Marriage Contract


SPOUSAL SUPPORT

• Long marriage – look at comparable lifestyle

• Priority given to child support

• Periodic vs. lump-sum payments

• Third-party payments


RETIREMENT ACCOUNTS

• RRSPs• Canada Pension Plan• Old Age Security• Company Pension

(private pension)


RRSP ROLLOVER

• Only allowed if there is a divorce and a divorce decree or separation agreement

• Funds are transferred directly from one plan to another


CPP (Canada Pension Plan)

Can be divided Credit Splitting


OAS (Old Age Pension)

Benefit starts over age 65 Must be Canadian citizen Must apply for benefit


PRIVATE PENSIONS

“If and When” approach

Lump-sum payment


LUMP-SUM METHOD

Present Value List in assets Discount Rate Tax Liability


Pensions• Need for valuation• Federal vs.

Provincial• Age • Income stream• Asset

• Where do you as an advisor fit into this picture?

• How can you help clients understand the value of an asset?


Helping clients understand their financial reality – today and in the future

Making an informed financial settlement helps the client move on to

the next phase of his/her life


Kate and Kenneth

• Kate is 46 years old

• Kenneth is 52 years old

• Married 18 years

• Two sons: ages 11 and 7

• Kate’s take-home pay is $21,600

• Kenneth’s take-home pay is $132,000


Kate and Kenneth

• Home equity $180,000

• Mutual Funds $ 92,000

• RRSPs $212,000• Business $180,000


KATE

Home equity $180,000

1/2 Mutual Funds $ 46,000

1/2 RRSPs $106,000

Total $332,000


KENNETH

1/2 Mutual Funds $ 46,000

1/2 RRSPs $106,000

Business $180,000

Total $332,000


Kenneth’s Offer to Kate

50% of the assets$1,000/month child support$1,500/month spousal

support for five years


K E N N E T H

A g e N e t S a l a r y C P P S p o u s a l C h i l d E x p e n s e s T a x L i a b i l i t y C a s h F l o w L i q u i d A s s e t s R R S P B u s i n e s s N e t W o r t h5 2 4 . 0 0 % 2 . 0 0 % 5 y e a r s 1 1 y e a r s 4 . 0 0 % 4 0 % 5 . 5 0 % 7 . 5 0 % 4 . 0 0 %5 2 $ 1 3 2 , 0 0 0 $ 1 8 , 0 0 0 $ 1 2 , 0 0 0 $ 4 2 , 0 0 0 ( $ 7 , 2 0 0 ) $ 6 7 , 2 0 0 $ 4 6 , 0 0 0 $ 1 0 6 , 0 0 0 $ 1 8 0 , 0 0 0 $ 3 3 2 , 0 0 05 3 $ 1 3 7 , 2 8 0 $ 1 8 , 0 0 0 $ 1 2 , 0 0 0 $ 4 3 , 6 8 0 ( $ 7 , 2 0 0 ) $ 7 0 , 8 0 0 $ 1 1 5 , 7 3 0 $ 1 2 5 , 9 5 0 $ 1 8 7 , 2 0 0 $ 4 2 8 , 8 8 05 4 $ 1 4 2 , 7 7 1 $ 1 8 , 0 0 0 $ 1 2 , 0 0 0 $ 4 5 , 4 2 7 ( $ 7 , 2 0 0 ) $ 7 4 , 5 4 4 $ 1 9 2 , 8 9 5 $ 1 4 7 , 3 9 6 $ 1 9 4 , 6 8 8 $ 5 3 4 , 9 7 95 5 $ 1 4 8 , 4 8 2 $ 1 8 , 0 0 0 $ 1 2 , 0 0 0 $ 4 7 , 2 4 4 ( $ 7 , 2 0 0 ) $ 7 8 , 4 3 8 $ 2 7 8 , 0 4 8 $ 1 7 0 , 4 5 1 $ 2 0 2 , 4 7 6 $ 6 5 0 , 9 7 55 6 $ 1 5 4 , 4 2 1 $ 1 8 , 0 0 0 $ 1 2 , 0 0 0 $ 4 9 , 1 3 4 ( $ 7 , 2 0 0 ) $ 8 2 , 4 8 7 $ 3 7 1 , 7 7 9 $ 1 9 5 , 2 3 5 $ 2 1 0 , 5 7 5 $ 7 7 7 , 5 8 85 7 $ 1 6 0 , 5 9 8 $ 1 2 , 0 0 0 $ 5 1 , 0 9 9 $ 9 7 , 4 9 9 $ 4 7 4 , 7 1 4 $ 2 2 1 , 8 7 7 $ 2 1 8 , 9 9 8 $ 9 1 5 , 5 8 95 8 $ 1 6 7 , 0 2 2 $ 1 2 , 0 0 0 $ 5 3 , 1 4 3 $ 1 0 1 , 8 7 9 $ 5 9 8 , 3 2 2 $ 2 5 0 , 5 1 8 $ 2 2 7 , 7 5 7 $ 1 , 0 7 6 , 5 9 85 9 $ 1 7 3 , 7 0 3 $ 9 , 0 0 0 $ 5 5 , 2 6 9 $ 1 0 9 , 4 3 4 $ 7 3 3 , 1 0 8 $ 2 8 1 , 3 0 7 $ 2 3 6 , 8 6 8 $ 1 , 2 5 1 , 2 8 36 0 $ 1 8 0 , 6 5 1 $ 9 , 0 0 0 $ 5 7 , 4 8 0 $ 1 1 4 , 1 7 1 $ 8 8 2 , 8 6 3 $ 3 1 4 , 4 0 5 $ 2 4 6 , 3 4 2 $ 1 , 4 4 3 , 6 1 16 1 $ 1 8 7 , 8 7 7 $ 9 , 0 0 0 $ 5 9 , 7 7 9 $ 1 1 9 , 0 9 8 $ 1 , 0 4 5 , 5 9 2 $ 3 4 9 , 9 8 5 $ 2 5 6 , 1 9 6 $ 1 , 6 5 1 , 7 7 36 2 $ 1 9 5 , 3 9 2 $ 9 , 0 0 0 $ 6 2 , 1 7 0 $ 1 2 4 , 2 2 2 $ 1 , 2 2 2 , 1 9 7 $ 3 8 8 , 2 3 4 $ 2 6 6 , 4 4 4 $ 1 , 8 7 6 , 8 7 66 3 $ 2 0 3 , 2 0 8 $ 6 4 , 6 5 7 $ 1 3 8 , 5 5 1 $ 1 , 4 1 3 , 6 4 0 $ 4 2 9 , 3 5 2 $ 2 7 7 , 1 0 2 $ 2 , 1 2 0 , 0 9 46 4 $ 2 1 1 , 3 3 6 $ 6 7 , 2 4 3 $ 1 4 4 , 0 9 3 $ 1 , 6 2 9 , 9 4 1 $ 4 7 3 , 5 5 3 $ 2 8 8 , 1 8 6 $ 2 , 3 9 1 , 6 8 16 5 $ 2 1 9 , 7 9 0 $ 6 9 , 9 3 3 $ 1 4 9 , 8 5 7 $ 1 , 8 6 3 , 6 8 1 $ 5 2 1 , 0 7 0 $ 2 9 9 , 7 1 3 $ 2 , 6 8 4 , 4 6 46 6 $ 1 3 , 6 0 0 $ 7 2 , 7 3 0 ( $ 5 9 , 1 3 0 ) $ 2 , 1 1 6 , 0 4 0 $ 5 6 0 , 1 5 0 $ 3 1 1 , 7 0 2 $ 2 , 9 8 7 , 8 9 26 7 $ 1 3 , 8 7 2 $ 7 5 , 6 4 0 ( $ 6 1 , 7 6 8 ) $ 2 , 1 7 3 , 2 9 2 $ 6 0 2 , 1 6 1 $ 3 2 4 , 1 7 0 $ 3 , 0 9 9 , 6 2 36 8 $ 1 4 , 1 4 9 $ 7 8 , 6 6 5 ( $ 6 4 , 5 1 6 ) $ 2 , 2 3 1 , 0 5 5 $ 6 4 7 , 3 2 3 $ 3 3 7 , 1 3 7 $ 3 , 2 1 5 , 5 1 56 9 $ 1 4 , 4 3 2 $ 8 1 , 8 1 2 ( $ 6 7 , 3 7 9 ) $ 2 , 2 8 9 , 2 4 8 $ 6 9 5 , 8 7 3 $ 3 5 0 , 6 2 2 $ 3 , 3 3 5 , 7 4 27 0 $ 1 4 , 7 2 1 $ 8 5 , 0 8 4 ( $ 7 0 , 3 6 3 ) $ 2 , 3 4 7 , 7 7 7 $ 7 4 8 , 0 6 3 $ 3 6 4 , 6 4 7 $ 3 , 4 6 0 , 4 8 77 1 $ 1 5 , 0 1 5 $ 8 8 , 4 8 8 ( $ 7 3 , 4 7 2 ) $ 2 , 4 0 6 , 5 4 1 $ 8 0 4 , 1 6 8 $ 3 7 9 , 2 3 3 $ 3 , 5 8 9 , 9 4 2

P r i n t


�

K A T E

A g e N e t S a l a r y S p o u s a l C h i l d E x p e n s e s A d j u s t T a x L i a b i l i t y C a s h F l o w L i q u i d A s s e t s R R S P H o m e N e t W o r t h4 6 4 . 0 0 % 5 y e a r s 1 1 y e a r s 4 . 0 0 % 2 8 % 5 . 5 0 % 7 . 5 0 % 4 . 0 0 %4 6 $ 2 1 , 6 0 0 $ 1 8 , 0 0 0 $ 1 2 , 0 0 0 $ 5 8 , 0 0 0 $ 5 , 0 4 0 ( $ 1 1 , 4 4 0 ) $ 4 6 , 0 0 0 $ 1 0 6 , 0 0 0 $ 1 8 0 , 0 0 0 $ 3 3 2 , 0 0 04 7 $ 2 2 , 4 6 4 $ 1 8 , 0 0 0 $ 1 2 , 0 0 0 $ 6 0 , 3 2 0 $ 5 , 0 4 0 ( $ 1 2 , 8 9 6 ) $ 3 7 , 0 9 0 $ 1 1 3 , 9 5 0 $ 1 8 7 , 2 0 0 $ 3 3 8 , 2 4 04 8 $ 2 3 , 3 6 3 $ 1 8 , 0 0 0 $ 1 2 , 0 0 0 $ 6 2 , 7 3 3 $ 5 , 0 4 0 ( $ 1 4 , 4 1 0 ) $ 2 6 , 2 3 4 $ 1 2 2 , 4 9 6 $ 1 9 4 , 6 8 8 $ 3 4 3 , 4 1 84 9 $ 2 4 , 2 9 7 $ 1 8 , 0 0 0 $ 1 2 , 0 0 0 $ 6 5 , 2 4 2 $ 5 , 0 4 0 ( $ 1 5 , 9 8 5 ) $ 1 3 , 2 6 7 $ 1 3 1 , 6 8 3 $ 2 0 2 , 4 7 6 $ 3 4 7 , 4 2 65 0 $ 2 5 , 2 6 9 $ 1 8 , 0 0 0 $ 1 2 , 0 0 0 $ 6 7 , 8 5 2 $ 5 , 0 4 0 ( $ 1 7 , 6 2 3 ) $ 1 3 8 , 0 8 0 $ 2 1 0 , 5 7 5 $ 3 4 8 , 6 5 55 1 $ 2 6 , 2 8 0 $ 1 2 , 0 0 0 $ 7 0 , 5 6 6 ( $ 3 2 , 2 8 6 ) $ 1 2 5 , 8 7 9 $ 2 1 8 , 9 9 8 $ 3 4 4 , 8 7 65 2 $ 2 7 , 3 3 1 $ 1 2 , 0 0 0 $ 7 3 , 3 8 9 ( $ 3 4 , 0 5 8 ) $ 9 3 , 9 9 3 $ 2 2 7 , 7 5 7 $ 3 2 1 , 7 5 15 3 $ 2 8 , 4 2 4 $ 9 , 0 0 0 $ 7 3 , 3 2 4 ( $ 3 , 0 0 0 ) ( $ 3 5 , 9 0 0 ) $ 5 7 , 4 4 9 $ 2 3 6 , 8 6 8 $ 2 9 4 , 3 1 75 4 $ 2 9 , 5 6 1 $ 9 , 0 0 0 $ 7 6 , 2 5 7 ( $ 3 7 , 6 9 6 ) $ 1 5 , 8 0 6 $ 2 4 6 , 3 4 2 $ 2 6 2 , 1 4 85 5 $ 3 0 , 7 4 4 $ 9 , 0 0 0 $ 7 9 , 3 0 7 ( $ 3 9 , 5 6 4 ) ( $ 3 1 , 2 5 9 ) $ 2 5 6 , 1 9 6 $ 2 2 4 , 9 3 75 6 $ 3 1 , 9 7 3 $ 9 , 0 0 0 $ 8 2 , 4 8 0 ( $ 4 1 , 5 0 6 ) ( $ 8 1 , 9 0 1 ) $ 2 6 6 , 4 4 4 $ 1 8 4 , 5 4 35 7 $ 3 3 , 2 5 2 $ 7 6 , 7 7 9 ( $ 9 , 0 0 0 ) ( $ 4 3 , 5 2 7 ) ( $ 1 3 5 , 0 2 9 ) $ 2 7 7 , 1 0 2 $ 1 4 2 , 0 7 35 8 $ 3 4 , 5 8 2 $ 7 9 , 8 5 0 ( $ 4 5 , 2 6 8 ) ( $ 1 9 0 , 7 4 3 ) $ 2 8 8 , 1 8 6 $ 9 7 , 4 4 35 9 $ 3 5 , 9 6 6 $ 8 3 , 0 4 4 ( $ 4 7 , 0 7 8 ) ( $ 2 4 8 , 6 8 5 ) $ 2 9 9 , 7 1 3 $ 5 1 , 0 2 86 0 $ 3 7 , 4 0 4 $ 8 6 , 3 6 6 ( $ 4 8 , 9 6 1 ) ( $ 3 0 8 , 9 4 6 ) $ 3 1 1 , 7 0 2 $ 2 , 7 5 66 1 $ 3 8 , 9 0 0 $ 8 9 , 8 2 0 ( $ 5 0 , 9 2 0 ) ( $ 3 7 1 , 6 1 6 ) $ 3 2 4 , 1 7 0 ( $ 4 7 , 4 4 7 )6 2 $ 4 0 , 4 5 6 $ 9 3 , 4 1 3 ( $ 5 2 , 9 5 7 ) ( $ 4 3 6 , 7 9 4 ) $ 3 3 7 , 1 3 7 ( $ 9 9 , 6 5 7 )6 3 $ 4 2 , 0 7 5 $ 9 7 , 1 5 0 ( $ 5 5 , 0 7 5 ) ( $ 5 0 4 , 5 7 8 ) $ 3 5 0 , 6 2 2 ( $ 1 5 3 , 9 5 6 )6 4 $ 4 3 , 7 5 8 $ 1 0 1 , 0 3 6 ( $ 5 7 , 2 7 8 ) ( $ 5 7 5 , 0 7 4 ) $ 3 6 4 , 6 4 7 ( $ 2 1 0 , 4 2 7 )6 5 $ 4 5 , 5 0 8 $ 1 0 5 , 0 7 7 ( $ 5 9 , 5 6 9 ) ( $ 6 4 8 , 3 9 0 ) $ 3 7 9 , 2 3 3 ( $ 2 6 9 , 1 5 7 )

P r i n t


Kate & Kenneth's Net Worth ChartVersion 1

($200,000)

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

$2,000,000

$2,200,000

$2,400,000

$2,600,000

$2,800,000

$3,000,000

46 48 50 52 54 56 58 60 62 64 66

Kate's Age (years)

Ne

t W

ort

h (

$)

Kate

Kenneth


Scenario #2

Increase spousal support to $2,500 per month for 10 years



(vs. Kate's Age)

($200,000)

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

$2,000,000

$2,200,000

$2,400,000

$2,600,000

$2,800,000

$3,000,000

46 48 50 52 54 56 58 60 62 64 66

Kate's Age (years)

Ne

t W

ort

h (

$)

Kate

Kenneth


Scenario #3

What would it take to equalize net cash flow the first year?


Scenario #3

• $5,000/month spousal support for five years

• Then $4,000/month for five years

• Then $3,000/month for five years



($200,000)

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

$2,000,000

$2,200,000

$2,400,000

$2,600,000

$2,800,000

$3,000,000

46 48 50 52 54 56 58 60 62 64 66

Kate's Age (years)

Ne

t W

ort

h (

$)

Kate

Kenneth


Helping your clients understand

• By being able to help them see what their financial future looks like if they choose one settlement over another, you are providing a unique and vital service

• Clients who know what their lives will look like post-divorce usually find the process more palatable and less stressful


What not to do

• Do not give legal advice!

• Do not recommend settlement options!

• Do not try to value pensions or other assets!


What you can do• With specialized knowledge, you can

assist your clients in making informed decisions

• You can advise on tax issues• You can advise on retirement issues• You can work as team member in the

various process of Mediation, Collaborative Divorce, and Arbitration


QUESTIONS ????

Debbie Hartzman (CFP, CLU, CDFA) is here to help answer your technical questions.

copyright © 2007 institute for divorce financial analysts dollars and sense of divorce what...

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