Industry expert on the importance of establishing a date of separation and not taking civility for granted
Advisors have been urged not to underestimate the seriousness of the situation when clients come to them for advice about a divorce or separation.
In part two of her interview with WP, Christine Van Cauwenberghe, vice president of tax and estate planning and advanced financial planning at IG Wealth Management, expanded on the issue of division of assets and how to avoid conflicts. Part one can be read here.
Often, valuing both parties' possessions in order to divide up the possession equally is a source of friction. Key to beginning this process is establishing a date of separation, which can in itself be disputed.
Van Cauwenberghe said: “Was it middle of March 2020, when perhaps your portfolio was artificially down by 40%? Or was in December of 2020 when things have pretty much recovered? Even if you aren't arguing about the valuation date, let’s say the client has a small business. What’s the market value of that business? Now you have to appraise that asset and [determine] its after-tax value?”
These types of discussions can lead to protracted negotiations in terms of deciding what everything is worth and who owes what to whom because market valuation can really play into this. An advisor can guide the client through this but will likely need the help of a family lawyer, particularly for high-net-worth clients.
With the complexity this presents, and potential ill-feeling this can spark, Van Cauwenberghe said advisors must take all situation seriously, even if everyone seems to be getting on famously. This means ensuring you only represent one person in the separation to not only satisfy compliance but also to avoid being caught in the crossfire if things turn ugly.
She said: “The regulators certainly take it very seriously and sometimes advisors end up in the crosshairs of the arguments. If someone gets very angry and starts taking it out on their financial planner, or they start lodging complaints with the regulator because they feel one financial planner has a stronger relationship with their ex-spouse, they can be stuck in the middle of the argument.
“You don't want to be that lightning rod; you want to make sure that things are separate from the very beginning. So, even when client says ‘Oh, I'm not concerned, this isn't an issue, we're all getting along’, don't just let things slide for a while.
“If you're not sure what the compliance procedures are with your organization, contact your compliance department right away and take all situations regarding separation and divorce seriously.”
Van Cauwenberghe also reminded advisors not to look at the estate plan until it’s too late. Often, clients need to get their own insurance policies and, if that’s left too long, they can become uninsurable. Advisors must also look at beneficiary designations because maybe everything is still designated in favour of the former spouse.
She said: “It’s probably not the first thing [an advisor] would do but do look at their entire financial plan, their retirement plan, their estate plan and their beneficiary designations because separation and divorce can permeate pretty much every part of a client’s financial plan.”