The increase in grey divorces is driving the growth of financial forecasting as a tool in property arrangements. While family lawyers can divide a couple’s assets equitably at a set point in time, specialized financial professionals can make projections that show how that division translates into long-term income. Their use is already well accepted in collaborative circles, but practitioners hope they will become an integral part of mediation and general practice as well.
“It is really important to surround yourself with good professionals,” says Reesa Heft, a family lawyer and owner of Heft Law in Toronto.
“When you get to grey divorces, people’s finances are a lot more complicated than when they are in their twenties. It’s really helpful to have someone unravel some of the issues that are beyond a lawyer’s scope.”
The Chartered Financial Divorce specializations have been developing over the last 15 years. Linda Cartier is the president of the Academy of Financial Divorce Specialists, which is an educational body that provides training for financial planners.
“Members have to have a financial accounting designation already,” advises Cartier. “Everyone working in this area has a certain percentage of their practice going through marriage breakdown and have seen the devastating effects in that situation.”
The cornerstone of the specialization is financial forecasting, which goes beyond the allocation of assets between parties.
“Asset division is what it is,” notes Heft. “You can do different deals, but the math is still the same. It’s based on a fixed date — the date of separation — when it’s possible to identify the assets. There are no variables with that, but with income there are always variables. The payor could have a catastrophic health episode, take retirement, or die, or the economy could have a horrible downturn. If you take the assets and invest them wisely, a financial person can do a calculation of what sort of return you will get.”
Marion Korn has set up a mediation business called Mutual Solutions based in Toronto in partnership with Chartered Financial Divorce analyst Eva Sachs.
Korn describes Sachs’ skillset as “the ability to collect financial information and use it in a way to illustrate outcomes.”
“We are increasingly getting more challenging cases. They are difficult to do without someone like Eva who can, with effectiveness and efficiency, pull information together with great clarity,” says Korn.
Cartier points out “people are making huge life choices.”
“It’s important to see what it’s going to look like if you give away investments and pensions. If you look down the road, you might make a different decision,” she says.
Cartier advises that there are many factors to be taken into account in making projections, such as rates of return, cost of living, tax implications, and the family dynamics particular to the parties.
“Someone might need to be retrained before they can stand alone. There might be more debts than assets. Just the fact that you’re taking one residence and now having to look after two residences means that the same dollars for a family that were together need to be stretched,” she says.
Cartier feels that the legal profession is slowly becoming more aware of the designation.
“They may not know the difference between someone who is a salesperson, a designated financial planner, or a chartered financial divorce specialist. Many think they are getting what they need from the wrong planning professional. But once lawyers have used us, they realize it’s not their area of expertise,” she says.
“We are taking work off them that they don’t really enjoy. Their clients get a better end result more cost effectively. They are put in a powerful position to reorganize so they can go forward.”
Cartier notes that, so far, collaborative lawyers seem to be the most receptive to engaging financial professionals. Korn hopes to see the use of CFDSs spread beyond collaborative law.
“I would love to see their skillset used in family mediation. Not all families should have to bear the higher cost of collaborative practice. Just because mediation is less expensive, they shouldn’t miss out on that extra piece,” she says.
Their use is also not confined to the retirement sector, although those tend to be the clients with the most money and complexity.
“Grey is a growing sector, but there are a lot of middle-aged couples, too,” says Cartier. “They may have embedded capital gains, estate planning concerns, second, or third mortgages. Children may or may not be connected to both parties.”
“There has to be enough money to warrant having a financial specialist come in,” says Heft. “It’s also very helpful for people who just can’t wrap their head around doing the financial piece. Many clients are very used to having other people do things for them. They almost need a financial babysitter.”
Cartier confirms that apart from projections, the CFDS will also demystify some of what clients don’t understand when they go to their lawyers.
“Lawyers are very familiar with legalese and don’t tend to put it in layman’s terms. We provide a bridge.
We also do a lot of work in budgeting and financial management,” she says.
Korn and Sachs have co-authored a self-help book entitled When Harry Left Sally — Finding Your Way Through Grey Divorce. Their service emphasizes the need to gather all the relevant financial information before any problem-solving starts.
“We do a very complete cash flow analysis on spending and create as many analytical spreadsheets as possible. It’s more important to keep testing and forecasting the older they are. Few things will change,” she says.
“When they understand exactly where the money is going, it can help them to decide how to divvy things up — whether they can keep the house or need to sell it. We cut through the emotional background so they understand their position and reconsider a deep attachment to things they can’t afford,” she says.