Lockdown divorce

Practical financial advice for separation and divorce during COVID-19

The COVID-19 pandemic lockdowns have added to the stress of couples undergoing separation or divorce. And with court services limited to very urgent cases involving custody of children, options for settlement proceedings are limited. Divorce proceedings are already often contentious, emotionally fraught, and never easy. The lockdown over the past few months has made it even more difficult to settle on a fair division of financial assets, and newer cases are being delayed or deferred until the lockdown ends and courts can begin to clear the divorce case backlog.

That’s why it’s absolutely critical to keep a cool head about your finances and property if you are in this situation. There are three key principles to follow.

1. Have a plan, be flexible

You’ll need something more than just a back-of-the-envelope financial guesswork when it comes to splitting assets. With the stock market crash in March and subsequent market volatility, it may be necessary to renegotiate previous divorce settlements if they haven’t already been finalized. I recommend consulting a Certified Financial Planner (CFP) who has experience in navigating the special challenges of financial planning during and after a divorce. This planner will be able to help you navigate the immediate next steps and help set you on a path to recovery, both emotionally and financially. If you haven’t already done so, a priority should be to separate your advisors, both legal and financial, from those of your spouse, to avoid any possible conflicts of interest. Most advisors and lawyers are still conducting business via teleconferencing (Zoom, Skype, etc.)

2. Keep records

Finding, tracking, and keeping important documents and records is key for establishing fair divorce settlements. Most importantly, you’ll need to locate documents relating to ownership of real property, investments, and bank accounts, both here and abroad. Originals of signed wills, powers of attorney, trusts, and so on should be tracked down. Your lawyer and financial plannier will probably have access to this, but it’s prudent to follow up. Having this information at hand will give you a head start on the rest of the financial planning you have to do, especially the division of property.

3. Assets and liabilities

What do you own, both jointly and individually? This includes not only your principal residence, but any other real estate, like a cottage or timeshare. Ditto for investments, including funds held in Tax-Free Savings Accounts, Registered Retirement Savings Plans, Registered Education Savings Plans, Registered Retirement Income Funds, and any non-registered brokerage accounts, both full-service and self-directed.

Of course, the other side of the coin is what you owe, both jointly and individually. This includes mortgages, car loans and leases, lines of credit, credit card balances, personal loans, and so on. Any property you brought to the marriage is yours, but any increase in the value of that property since the date of marriage must be shared.

Take stock of income from employment or self-employment, a business, a trust, and investments. All sources should be counted. Itemize and detail all your ongoing expenses, both short-term daily living expenses and longer-term recurring expenses, like taxes, loan and mortgage payments.

Working with the settlement

The stress of a divorce, with its hearings over settlements and custody arrangements if there are children involved, can quickly eclipse any thoughts of financial planning for yourself. But it’s something you shouldn’t ignore, because you definitely have to deal with “what comes after.” I’ve developed a set of basic principles to help those who find themselves in this challenging situation cope with the financial stress and ensure stability now and into the future. Much of this planning can be done working remotely with your advisors.

If you’ve engaged the services of a financial planner for yourself, you need to have a frank and open discussion about your life goals, your values, your investment goals, and financial objectives in this new phase of your life. You can then confidently develop an action plan that includes these key priorities:

Net worth. A clear picture of what you own and what you owe after the dust has settled. It doesn’t matter whether you think it’s good, bad, or indifferent, fair or unfair. It’s the reality, and it’s now time to concentrate on how to grow from here.

Priorities. Setting priorities is something you can talk through with your planner. You’ll naturally have short-term ones, like paying the bills (e.g., mortgage and other debt) and everyday expenses for yourself and your dependants. But you’ll also have longer-term goals, like retirement planning, healthcare, estate planning, and insurance, all of which may have been jointly held when you were married but are now solely your responsibility.

Investments. To ensure you never get in “over your head” or outside your comfort zone with your investments, your financial planner will help you create a detailed statement of investment objectives, defining the optimal allocation of your investment assets. And they should provide a detailed written strategy for the investment management team they retain to manage your assets. Continual management, monitoring, and reporting are key functions of the financial planner.

Taxes, estate planning, insurance. Taxes can have a major impact on disposition of assets, especially if there are large investment accounts involved, both registered and non-registered. It’s here you’ll really need expert help. Your lawyer, often working with financial professionals, should ensure the tax bite is minimized in any settlement. Afterwards, your financial planner should be able to call on her network of professionals to make sure your family tax bill is cut to the bone. Your planner may also refer you to the appropriate qualified professionals to ensure that you and your dependants are protected with the properly drafted wills, powers of attorney, an estate plan, and life insurance.

Your post-divorce objective is to get back on your feet financially. Starting with the basics I’ve outlined here, you’ll be able to make that happen a lot faster than you might have thought possible.

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.

Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.