1. Copyright © 2007 Institute for Divorce Financial Analysts Dollars and Sense of Divorce What financial advisors need to know. Presenter: Diana Shepherd, CDFA™

2. Copyright © 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

3. Copyright © 2007 Institute for Divorce Financial Analysts Three Sources of Money in Divorce  F F amily Property u Spousal Support u Child Support

4. Copyright © 2007 Institute for Divorce Financial Analysts 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:

5. Copyright © 2007 Institute for Divorce Financial Analysts 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.

6. Copyright © 2007 Institute for Divorce Financial Analysts 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

7. Copyright © 2007 Institute for Divorce Financial Analysts 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)

8. Copyright © 2007 Institute for Divorce Financial Analysts Family Property Ownership Division

9. Copyright © 2007 Institute for Divorce Financial Analysts Matrimonial Home Other Assets

10. Copyright © 2007 Institute for Divorce Financial Analysts FAMILY PROPERTY 1. Liquid assets 2. Real Estate 3. Businesses 4. Furniture 5. Collections etc. 6. Pensions

11. Copyright © 2007 Institute for Divorce Financial Analysts DIVIDE PROPERTY 1. 50/50 if owned or used 2. Exceptions 3. Marriage Contract

12. Copyright © 2007 Institute for Divorce Financial Analysts SPOUSAL SUPPORT Long marriage – look at comparable lifestyle Priority given to child support Periodic vs. lump-sum payments Third-party payments

13. Copyright © 2007 Institute for Divorce Financial Analysts RETIREMENT ACCOUNTS RRSPs Canada Pension Plan Old Age Security Company Pension (private pension)

14. Copyright © 2007 Institute for Divorce Financial Analysts 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

15. Copyright © 2007 Institute for Divorce Financial Analysts CPP (Canada Pension Plan)  Can be divided  Credit Splitting

16. Copyright © 2007 Institute for Divorce Financial Analysts OAS (Old Age Pension) u Benefit starts over age 65 u Must be Canadian citizen u Must apply for benefit

17. Copyright © 2007 Institute for Divorce Financial Analysts PRIVATE PENSIONS u “If and When” approach u Lump-sum payment

18. Copyright © 2007 Institute for Divorce Financial Analysts LUMP-SUM METHOD  Present Value  List in assets  Discount Rate  Tax Liability

19. Copyright © 2007 Institute for Divorce Financial Analysts 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? Where do you as an advisor fit into this picture? How can you help clients understand the value of an asset?

20. Copyright © 2007 Institute for Divorce Financial Analysts 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

21. Copyright © 2007 Institute for Divorce Financial Analysts 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

22. Copyright © 2007 Institute for Divorce Financial Analysts Kate and Kenneth Home equity$180,000 Mutual Funds$ 92,000 RRSPs$212,000 Business$180,000

23. Copyright © 2007 Institute for Divorce Financial Analysts KATE Home equity$180,000 1/2 Mutual Funds$ 46,000 1/2 RRSPs$106,000 Total$332,000

24. Copyright © 2007 Institute for Divorce Financial Analysts KENNETH 1/2 Mutual Funds$ 46,000 1/2 RRSPs$106,000 Business$180,000 Total$332,000

25. Copyright © 2007 Institute for Divorce Financial Analysts Kenneth’s Offer to Kate  50% of the assets  $1,000/month child support  $1,500/month spousal support for five years

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29. Scenario #2 Increase spousal support to $2,500 per month for 10 years

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31. Scenario #3 What would it take to equalize net cash flow the first year?

32. Copyright © 2007 Institute for Divorce Financial Analysts Scenario #3 $5,000/month spousal support for five years Then $4,000/month for five years Then $3,000/month for five years

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34. 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

35. Copyright © 2007 Institute for Divorce Financial Analysts What not to do Do not give legal advice! Do not recommend settlement options! Do not try to value pensions or other assets!

36. Copyright © 2007 Institute for Divorce Financial Analysts 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

37. Copyright © 2007 Institute for Divorce Financial Analysts QUESTIONS ???? Debbie Hartzman (CFP, CLU, CDFA) is here to help answer your technical questions.