Avoiding the Financial Mistakes of Divorce
Those of us who know me know that I’m in a happy marriage with Squatch.
But I was married before.
I was married young and after 7 years, it ended in divorce. I won’t bore you with the reasons I wanted a divorce, but I will say that I knew I was going to be financially devastated when I left. I had just started out on my career path after university. I still had student loan debt. I remember going to a law office, being told the thousands of dollars it was going to cost upfront just to hire a lawyer and breaking down and crying because I didn’t know what to do.
Thankfully, I still had a good job, and they were willing to relocate me across the country where I was able to live with my mother and sister. Those days we women spent together were happy days. We had a year of good fun together before I was able to go back out on my own. For me, divorce was the right decision.
According to Psychology Today, Women initiate divorce more often than men. And divorced women are typically happier after ending their marriages. But are we ready for the financial reality of separation?
Truth be told, a woman can expect an almost 30% decline in her standard of living following divorce, while men often see an increase of 10%.
That’s why it is crucial to work with a wealth advisor as you make these decisions, as the decisions you make today will have a profound impact on your financial future.
To help you avoid some mistakes regarding divorce, I’m happy to introduce you to my guest today, Bettina Plendl.
Bettina is a Certified Financial Planner, a mediator, and a Chartered Financial Divorce Specialist. Her professional practice is solely focused on Financial Divorce Planning. She is fluent in both English and German and serves clients across British Columbia.
Come listen in as Bettina and I talk about how to avoid the financial mistakes of divorce.
What’s Inside?
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Rather Read All About It?Glory: So how does divorce financially affect women?
Bettina: I would say for the most part, women are very, very concerned during the process. Because naturally, the women are the caregivers, the planners, and often the organizers of the family, so they see a lot of question marks in the future.
Right? They wonder, how will I retire? How will this all pan out? Where am I going to live?
And it doesn't matter if I tell the woman, ‘well, you know, your family net worth is 4 million, so you will have 2 million after this process.’
Will it be enough? It's still that deep concern inside, and I think it affects women more than men. Men are for some reason not as concerned.
The first step would be really to talk to a good financial advisor, like yourself, Glory, and figure out what you can do with the asset base, and potential liabilities you will end up with after the divorce.
And my process is about tailoring the assets which are now to be split, most likely 50/50, in a way that benefits both parties for their new future. So that is the desired outcome, right?
To give an example, say she wants to open up, I don't know, a store, and he would like to stay in his job and retire. Then she needs cash and he doesn't need the cash, because he already has a cash flow from his employment.
So, he could potentially take over the assets which are registered or tax-sheltered and she probably requires, again, a lot of cash funds for her new adventure, having a boutique or whatever her plan is, or traveling abroad, let's say, whatever it is, right?
These are two extreme examples of how you can divide the assets.
And often what women are affected by too is if there's a home that needs to be sold, or if they really want to take it over. And they need to realize what comes along with owning a home. That's quite a major adventure to look after a whole house, maintenance and the costs of it.
So those are the two major things that come to mind. If I think about how it affects women financially, this is on the forefront of every woman.
Beyond that, I will have to say both partners are deemed to have 50/50. And it turns out, sometimes one partner isn't that great with the money and they spend it all. I have seen that on both sides. Just spending it all, having no planning whatsoever in place. And that is rather disappointing.
There's a lot of great financial planners out there, someone like you, right, who can really give great advice without being tied down by an institution, you could help that person with a financial plan. And so it won't get lost in you know, the heat of having a big party and going to Vegas and maybe some holiday and it's easy to burn through 100 grand, which then turns out to be not so smart, because now there's still bills to be paid and you're on your own. You still have to maintain a household.
Whether you're one or two people, it doesn't make too much of a difference. You always have the same basic costs. That's the reality.
But the good news is you're on your own and can start a new chapter in your life. And that is what you have to sometimes remind yourself, I think, if life feels very expensive being on your own.
Glory: It is less expensive to be a couple than a single person. When you're working with clients. You're looking at their financial statements to determine how best to split up the assets is that right?
Bettina: Yes. Normally, my clients, they're a little bit advanced in life, they're midlife let's say, in their late 40s, to somewhere in their mid-60s, that's the age range after 20-plus years of marriage they separate. Often the kids are maybe still in high school or university now or they are already empty nesters.
That's, I think, a common situation for many couples where they find themselves, "Oh, I don't actually know you anymore." And instead of exploring each other, and starting, you know, seeing the new opportunities, they look outside and see the better opportunities outside the relationship.
Most couples because they are, again, 20 plus years married, they have multiple layers of finances, sometimes it's employment where there's a pension plan attached, then there are RRSPs, which are tax-sheltered, they have a family home, potentially a rental property.
We are in BC. In BC, many of our workforce are self-employed. There's corporations or sole proprietorships involved. Those are all kinds of different assets. And my job would be to bring it on one line, look at all the implications of what's there, to learn, what is the family's net worth, that will be split.
We really look at the short-term, mid-term, and long-term plan of each partner to make sure if possible, the half of the asset that serves them best, or to find a sensible solution.
It's not only that everything gets cut in half, that is what the law says about net worth, but it doesn't say everybody gets 50/50 of everything.
That really I think is a financial decision and not necessarily a legal decision.
That is what this is about. To have, the least impact financially because you take a hit regardless.
Glory: And when do people usually find you? When in the divorce process do they usually find you?
Bettina: There's those who plan this out ahead of time, those who are like, oh, I plan to get divorced in one year, how do I best get the assets in my own name or things like that? (BTW – this doesn’t really help and I don't ethically agree to that.)
Most couples inquire after the separation has taken place – it may have been just a few weeks ago, or sometimes many years. Sometimes I see couples who are separated 15 years, but most often it's about one or two or three years.
And they kind of managed through it. And they have agreements in place.
But when one has moved on, potentially has a new partner or is just sick and tired of everything and wants that piece of paper, which is called the Separation Agreement, then it is time to talk. You need that Separation Agreement whether you are common law, which means never legally married, or legally married. If you're legally married, and you want to file for divorce, that's the court action. So you need that piece of paper, the Separation Agreement, and then you can file for divorce.
But people need to understand that if you entered a relationship and are common-law married, you have in the eyes of the law, a contract in place. And the Separation Agreement determines the terms basically, your terms how to dissolve that original contract.
It has two parts, the financial and the parenting (if required) and I'm the expert for the financials. And that covers basically the equalization amount, the pot of money, I was talking about. We need to split it so it serves the parties best.
And potentially then the second step would be support payments, if that's on the table for whatever reason. That's a whole other different topic. If you don’t have a separation agreement in place, what if there's an accident? What if that person ends up in a care home? Those are the things you need to consider if you don't have that separation agreement. And I can support the couple to have that separation agreement.
Most couples are really separated for a long time. Sometimes they started with lawyers and it didn't work out or it got too expensive. There's all kinds of reasons.
Best scenario is when a couple has separated, now they're ready to move on whenever that is. Both parties should be ready, because if one doesn't separate or isn't realizing this is happening, then you know, you're wasting a lot of time and money.
It's better to get some counseling first and then once that other party is ready to let go, come in see the specialists, your professionals. Put a team together. There can be a child specialist if there's kids involved, certainly a lawyer if you have a lot of legal questions. I mentioned a counselor or divorce coach who helps with digesting it mentally the changes that's going to happen.
And then of course, the financials which I can provide. It's different, the work I do from what a financial advisor do, because for divorce, there's a few different rules and things that need to be considered, especially if you talk CRA, there's a few things to know about that. That's why there are designations to do this kind of divorce work.
Glory: What are some of the common mistakes you see people make during the whole divorce process you've described?
Bettina: I hope most people avoid court and they seek an outside-of-court agreement because courts are expensive and people don't realize they don't actually need the court or judge telling them what to do.
So one mistake is really to pick up the phone and call a lawyer, I think it's best really to look at some websites, learn a little bit about your situation, and maybe inquire with professionals who offer free 15-minute calls or so to get a grip on what's going on, actually.
And then another mistake is again, being rushed, they don't look at assets closely enough. And they say, oh, yeah, that's fine. And we are amicable. And of course, you can keep this or that not knowing about the actual value.
Another mistake is to involve way too many family and friends. Because every single situation is different. Ask someone who understands and can listen to your specifics to get specific advice or information.
And the other major mistake I see is they spend 1000s of dollars on lawyers but don't look after themselves. Because there's no more money.
I think it's critical that people get solid advice and potentially have some counseling, because it is a stressful situation. You need maybe some coping mechanisms in place for yourself, if you're having a bad day, instead of buying a bottle of wine and drinking it away, or whatever your happy place might be. It might not serve you well.
So that is where I say maybe instead of spending so much money on all of this, look after yourself.
First, get a good financial plan in place for the time after the divorce. Have some counseling so you know how you can trust yourself that you can make it through this as it's a challenge. And especially if there are kids involved, make it a package for the family. As it is important. It's a family thing. It's a shame if a family can't support each other, right? Regardless, whether mom and dad are now living in the same house or not. It shouldn't matter, in my opinion.
Glory: And that's something that people don't talk a lot about. What you pointed out so well is dealing with emotions that are going to come up because they also affect our decisions, and the decisions are going to affect us for many years to come. Would you agree with that?
Bettina: Yeah, absolutely, Glory. That brings it to the point, right?
What you need is information and the capacity to make really good decisions.
Because they will impact you.
We don't know what tomorrow holds, or the next five years. We can only do our best as of today. And now I think every person deserves that. So it's just good to plan ahead and look after yourself.
Glory: And then by helping deal with those emotions, you won't make decisions that you might later regret. Now you work with a law office in British Columbia, who's created something called the "One Day Divorce." So, tell us about that.
Bettina: Yeah, it's actually Nick Greer and myself. He had the idea.
Nick is from Australia, I think I can share that. So in Australia, divorce is a little bit different. And they have a much higher percentage of collaborative professionals and professionals who work collaboratively with the family, which means staying out of court and being super transparent.
And they're not necessarily always amicable, but they are committed to finding a solution and not having that going on forever.
I will meet with the clients, and we prepare all the financials. If there's a complex child situation, they would meet with the child specialists. Really have the professionals assisting the family with the best of their knowledge from a professional point of view.
The couple now can come informed to the one-day mediation and hammer out the terms of their agreement. And it's very successful, we've really helped hundreds of couples, as it's fairly inexpensive compared to the other way.
But sometimes people are not ready. And that's where I say, we might have spent a lot of time on this, there were a lot of hopes up and then the partner wasn't ready for it.
So again, make sure you're ready for this step.
Glory: So that's called the One-Day Divorce, but in fact, there's a lot of work done in advance of the meeting. Is that correct?
Bettina: Yes, the financial work can be massive. Nick has to do his legal thing. And sometimes we have kids involved and they need a full Parenting Plan, which, again, someone else would prepare. It's a lot. That separation agreement is a few pages long, and you can't spell it out in a few hours.
But the actual discussion, how to go about things, will take place, and we have a red dotted line.
And the idea is that they sign the agreement, let's say the next day once they had a night to think about it, but yeah, we need to prepare for it.
Glory: They walk out of there with a Separation Agreement, and then that goes through the courts after that, or how does that work? What happens next?
Bettina: Yeah, basically, that's what it is.
But certainly, we would never, ever pressure anybody to sign that day. Absolutely not. They can take it home, and show it to their own lawyers. Because, you know, some people want to make sure it's all correct. And in their best interest, or that the lawyer sees that there are no legal flaws in it.
And it's interesting that in family law, and especially with CRA, that wording is critical. So it is critical that if you have a complex situation, you have the correct legal wording in it. And it's always good to have a second set of eyes on things and maybe sleep a night or more over it before again, you sign it, because that is it.
From there on, you can move on, then a lot of work to do in the aftermath of all of that, but the key is done.
Again, the couple is willing to say they know what it's about. We're not hiding anything.
Glory: Again, you're taking away some of the emotional stress and the time involved, just by going through this process. That's a much gentler process, it seems to me.
Bettina: Oh, yes.
Glory: Is there anything else that you think people should know? About going through this?
Bettina: I would like to encourage people to educate themselves about the process options they have going through a separation and divorce.
While you learn about the options, interview the professionals. We professionals are here to help you. And it is our job to be professional and assist you the best we can.
Learn more about the professional you're about to hire. If you want a collaborative process, for example, don't pick lawyers who love to go to court because sometimes that's the strength of the lawyer and they're good at it. But if you say no, I don't want to go to court, I want to have a smart, much smoother process, he might not be the perfect team member.
As for lawyers, you can go with a legal coach, you might not need full legal services. There are a lot of lawyers nowadays who offer, you know, legal advice like “pay as you go.” You might not have those big expenses, but you might be able to do a few things yourself.
I always encourage my clients to do a few things themselves. You can prepare this for me, I don't have to do this because I charge my hourly rate for that. So those are the things where you can maybe save some money and learn as you go because it's quite a learning curve.
It is, I think, interesting to learn more about your situation and what options you have available. See if your professional is a good team member so that we deserve to be on your team. And then maybe involve yourself a little bit, don't put your hands in your lap and wait for things to happen for you because they might not go the way you thought they would go, simply because we did what we thought is right, but the communication wasn't there.
The more you get involved the better it is, and you deserve that as well from your professional.
Glory: This has been great advice here. Bettina. Thanks so much for being on the Women's Wealth Canada podcast.
Bettina: It was my pleasure. Thank you, Glory, for having me.
Glory: After your investment assets have been fairly divided through divorce by working with a professional such as Bettina, you will want to have your own wealth advisor going forward. It’s likely that you and your spouse shared an advisor while you were married, but most wealth advisors will continue to work with only one of the partners, not both, as it can become uncomfortable for everyone and sometimes a conflict of interest for the advisor.
If you’re in the middle of planning for separation or have already divorced and are looking for a wealth advisor who has your interests at heart, please reach out to me.
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