Take Control Of Your Finances After A Divorce

Change is inevitable, and certain life situations present challenges. A divorce can be an emotionally difficult time, especially when it involves splitting assets, paying debts and creating a new financial plan. Franklin Templeton Investments’ Own Your Future program is designed to help you and your family prepare so that you are able to take control of your financial well-being.

What are my financial needs following a divorce?

Short-term cash flow

In some cases, your joint assets will remain frozen until the separation agreement is finalized, so you need to make a plan to continue paying your bills in the meantime. If you remain in the family home, you are also responsible for keeping up the monthly mortgage payments. If you have children, you may still have to pay school fees and fees for after-school activities and child care. All of these payments must be paid from one income until the joint assets are split. You need to determine the best source of cash flow to manage these immediate issues.

Accumulated debt:

Beyond your mortgage, you and your ex-spouse need to pay off any open lines of credit, credit cards and any other regular monthly payments, such as those associated with financed vehicles.

Budgeting:

Making the transition from a dual-income family to a single income can present challenges. It is important that you create a realistic budget that accurately reflects your new income and expenses. Create a plan, track your expenses, and stick to it.

Saving and investing for the future:

If your divorce is amicable, you may have support from your ex-spouse on investments for your children, but every situation is unique. You need to develop a savings and investment plan for the future, which may include investing for your children’s education and your own retirement. To prepare effectively, it is important to find a financial advisor who can help with your situation.

How do I find the right financial advisor?

The relationship you have with your advisor can be one of the most important in your life—especially following a divorce. That’s why it is so important to ensure that you find the right advisors for your needs, so that you’re on the same page when it comes to working together and setting your new objectives. Here are a few things you should consider when you are looking for the right financial advisor:

Understanding designations for financial advisors

The financial services industry encourages continuing education for all financial advisors. Here is a list of some of the industry’s most common designations that you can speak to your advisor about:

  • Financial Divorce Specialist
  • Canadian Securities Course (CSC)/Conduct and Practices Handbook Exam (CPH)
  • Certified Financial Planner (CFP)/Registered Financial Planner (RFP)
  • Chartered Financial Consultant (ChFC)
  • Certified Retirement Planner (CRP)
  • Chartered Financial Analyst (CFA)
  • Chartered Accountant (CA)/Certified Public Accountant (CPA)
  • Mentorships (ask about any mentoring programs your advisor has participated in)
  • Additional education/certifications/courses/training

Understanding areas of expertise for financial advisors

You want an advisor who can help you at every stage of your life. Your needs may include day-to-day investment activities or longer-term tasks such as retirement and estate planning. Regardless, your advisor should be able to help you get your finances in order; here are some areas you can ask them about:

  • Retirement planning (e.g., Registered Retirement Savings Accounts [RRSPs], Tax-Free Savings Accounts [TFSAs], etc.)
  • Estate planning
  • Tax planning
  • Education planning (e.g., Registered Education Savings Accounts [RESPs], etc.)
  • Pensions
  • Household budgeting
  • Insurance
  • Banking/mortgages

Understanding how financial advisors are paid

Advisors can be paid in a number of different ways, and understanding how they are paid can help you choose the advisor that best suits your needs. Payment structures can depend on the type of products and services advisors offer and the way they work. Common advisor fee structures include:

Commission based
Commission-based advisors are paid each time a transaction is made on your behalf. For example, when the advisor buys or sells a security or fund for you, he or she is often paid by the company that offers the investment product or is facilitating the purchase.

Percentage of assets
Some advisors charge a fee that is based on a percentage of the total value of the investments you have with them. This type of pay structure is common for advisors who have clients with larger investment portfolios.

Fee-based charges
Fee-based advisors charge a quarterly or annual flat fee for their services based on performing a certain task for you, such as creating a financial plan.

Hourly rate
Some advisors who provide a very specific service may be paid an hourly rate, similar to how other professionals are compensated. This option is not as common in the financial advisor industry.

Blended
Some advisors may be compensated with a blend of commissions and fees.

Understanding who financial advisors work with

Your advisor may not be able to help you in all aspects of your life—and that’s OK! Talk to your advisor about what relationships he or she has with different types of professionals such as:

  • Lawyers (estate, divorce, corporate, etc.)
  • Accountants
  • Insurance brokers
  • Mortgage brokers
  • Bank managers
  • Other professionals as needed

Understanding how the financial advisor services you

Advisor teams come in all shapes and sizes. If you are working with a single advisor, you will probably be in contact with that person most of the time. However, some advisors have a team of people who work with them, and it may be beneficial to gain an understanding of how they all work together to serve you.

Ask your advisor about the different roles and responsibilities each team member has and how these individuals’ roles might affect you. For example, you may want to ask who will handle administrative issues, such as a name or address change, and who will handle your investment/portfolio questions.

Setting expectations with a financial advisor

It’s important to know what to expect from your advisor. This will help you understand how often you should be meeting with your advisor and what other contact you can expect throughout the year.

Here are a few “touch points” you may want to speak to your advisor about:

  • One-on-one portfolio and update meetings
  • Market update information (e.g., newsletters, emails, etc.)
  • Statements and other reporting
  • Client events

Choosing the right advisor

Advisors are as varied as the individuals found in any profession. Training, philosophies and areas of expertise can vary greatly from advisor to advisor. It is very important that you feel comfortable with the person with whom you are working, and that you trust this individual to put your best interests first.

What questions should I ask my advisor?

Now that you have a better understanding of what to look for when searching for an advisor, you need to put this information to use. Here are a few questions that you should consider asking when you meet your potential advisor for the first time, to make sure he or she is the right fit for your needs:

  1. Do you have experience in dealing with clients who are going through a divorce or separation?
  2. What professional designations do you hold?
  3. Are there any educational areas you plan to pursue in the future?
  4. What service do most of your clients come to you for?
  5. What would you consider your area of specialty?
  6. Can you describe your fee model and how it would apply to me?
  7. Do you have professional partners you refer your clients to (such as an accountant or lawyer)?
  8. How does your practice or team operate?
  9. How often will we meet for a portfolio review?
  10. How often will I be contacted by you or your office?
  11. Do you have references that I can contact?

What financial information should I provide to my advisor?

To understand your financial situation, you will have to look into documents that detail your income, debts, investments, insurance and other relevant financial information. Collecting all of this information is also helpful when meeting with your financial advisor for the first time. Being able to provide a holistic view of your finances will help your financial advisor create a plan for your future. This checklist will help you get started.

Banking and income documents

Bring up-to-date statements for:

  • Checking and savings accounts
  • Credit cards
  • Mortgage
  • Loans or other line of credit
  • Up-to-date pay stub
  • Other income statements
  • Company stock options
  • Investment income and taxable dividends statements
  • Most recent tax return and “Notice of Assessment”

Investment statements

Bring the latest statements for each investment plan you have:

  • Registered Retirement Savings Plan (RRSP)
  • Registered Retirement Income Fund (RRIF)
  • Registered Education Savings Plan (RESP)
  • Life Income Fund (LIF)
  • Locked-in Retirement Account (LIRA)
  • Any other non-registered investment accounts

Pension and benefits documents

  • Documents detailing the amount you receive from Old Age Security (OAS)
  • Documents detailing the amount you receive from the Canada Pension Plan (CPP)
  • Documents detailing the amount you receive from death benefits or a survivor’s pension
  • Spousal pension
  • Private health care benefits

Insurance documents

Bring your most up-to-date policies or statements for:

  • Life insurance
  • Long-term disability insurance
  • Critical illness insurance
  • Home insurance
  • Car insurance
  • Recreational property or recreational vehicle insurance

Legal documents

  • A copy of your will

Key contact information

Bring a list that includes the names and numbers of the following:

    • Lawyer
    • Accountant
    • Executor