How to choose and work with financial professionals – both during and after divorce.
During and after divorce, many people report that their standard of living decreases -- sometimes significantly. Unless you change your occupation for one with a higher paycheck, you'll have the same amount of income but more and higher expenses: where there once was one, there are probably now two homes, two cars, two sets of furniture, two sets of children's clothes and toys, etc. During your divorce, you need sound financial advice to ensure the settlement is fair to both parties; afterwards, you'll probably need help adjusting to your new circumstances and planning for a secure future. Here's an introduction to some of the financial professionals you may need -- along with some suggestions of how to find and work with them.
A Chartered Accountant (CA) can handle many of the financial aspects of your divorce. His or her responsibility is to calculate your net worth and your spouse's net worth, and to produce figures that are agreeable to both you and the courts. There are a number of accreditations given to accountants, and you'll find these designations after their name. Wading through the differences between someone who is a Certified Fraud Examiner (CFE), or a Board Certified Forensic Examiner (BCFE), or a member of the American Society of Appraisers (ASA), or who has a National Association of Certified Valuation Accreditation (NACVA), may seem a daunting task (see "Who's Who,"below, for a brief description of the major designations), but it will help you to better understand who you'll need to help you.
In most cases, you'll be looking for a CA with practical experience in divorce matters. "The key word here is maturity," advises Joe Dwek, a CA in private practice in Toronto. "You want someone with experience, but you also want someone who you feel comfortable with and can understand -- someone who rambles about sections and charters isn't going to make the process easier. You want someone who speaks in layman's terms."
Finding an accountant
Usually the easiest way to find an accountant is through your lawyer. These two members of your "divorce team" will have to work closely together, so it's best to choose someone your lawyer is familiar with. If you use an accountant to do your taxes, ask him or her to recommend a colleague who has experience with matrimonial law. Dwek also cites the importance of personal referrals. "Try to get a recommendation from people who have been in similar situations," he says. "Going through a divorce attorney who has worked with an accountant before is a good method as well, but the best source is individuals who have gone through the process. And remember -- there's no other way to evaluate your comfort level except to sit down and talk with the accountant."
"Trust your instincts at all times when deciding ... whether to use Accountant A or Accountant B," says Esther M. Berger, a Certified Financial Planner (CFP) and the author of Money-Smart Divorce. Look for someone honest and forthright, and who offers reasonable economic terms.
Certified Financial Planner
During and after the divorce process, you may need the services of a Certified Financial Planner (CFP). "Whether it's for retirement, tax, investment, or estate planning, a CFP's role is working to help people reach a level of financial stability and independence," states Murray Shaver, CA, CFP, and division manager with the Investor's Group Toronto office. "The planner works mainly with two other professionals: accountants and lawyers. But depending on what other financial experts are involved, we might also deal with tax specialists, business managers, or family lawyers." A CFP can reduce the uncertainty about the future by forecasting the economic effects of alternative settlement proposals. For instance, a CFP can tell you what the economic consequences will be of "trading" the house for a pension, or of keeping one asset over another.
A CFP can also help you to adjust to a new fixed-income lifestyle, or assist with post-divorce tax, estate, or retirement planning. His or her job is to help you gain control of your financial future by developing a personalized plan with a time horizon and a solid investment strategy to help you towards financial stability for tomorrow.
After your divorce is final, a CFP can help you to become financially independent by assisting with money management and with long-term planning -- such as the kids' college tuition or your retirement fund.
If possible, interview two or three CFPs before choosing one. Remember, you could be working with this person for years to come, and you want to make sure you'll communicate well and feel comfortable with him or her.
A couple may agree to divide a pension immediately, or defer the division until the time of actual retirement. This is often complicated because it assumes that person is going to receive a pension. It's an actuary's role to calculate the benefit accrued up to the point of separation, or in more complicated cases, to work out the amount of the pension to be split at some time in the future. "An actuary tries to take into account all of the possibilities," says Ben Dibben of Toronto-based Eckler Partners, Ltd. "There may be a remarriage, a death before retirement, or one of the people may leave the job before receiving any pension."
An actuary's job of calculating probabilities isn't limited to pensions. He or she may also be required to determine the present value of other payments (e.g. support expenses) and give them a fixed capital value.
Certified Divorce Financial Analyst
A Certified Divorce Financial Analyst (CDFA) is a relatively new kid on the block. This financial professional -- often also a CFP or a CA -- has specialized skills and experience that enable him or her to analyze financial issues in divorce in their long-term context. "The divorce financial planner can help people going through divorce feel more secure about the choices they'll eventually make," says Carl Palatnik, Ph.D., CFP, CDFA, and a practitioner member and president of the Association of Divorce Financial Planners. "They'll be more aware of the lifestyle changes they need to adopt to make a particular settlement work, able to reach workable settlements more quickly, and less likely to have to revisit support issues in the future."
Planners who have met specific education and experience requirements have been designated Practitioner Members by the Association of Divorce Financial Planners or Certified Divorce Financial Analysts by the Institute for Certified Divorce Financial Analysts. Both organizations maintain referral services (see "Referral Services").
It's a sad fact that divorce can cause serious financial hardship. In the worst cases, it can lead to bankruptcy. "Bankruptcies caused by divorce are becoming more and more frequent," says Henry Vine, a Hamilton-area trustee in bankruptcy with the firm Vine & Williams. "A person who may have other obligations suddenly finds him or herself subject to court orders to make payments, so those other payments that aren't subject to court orders get put on hold. Suddenly you find you've got income tax arrears, and bank loans aren't being paid because maintenance and child-support payments take priority."
If your situation has become unmanageable and you've decided bankruptcy is a possible option, you'll need to contact a trustee in bankruptcy. A trustee in bankruptcy is a person licensed by the government to administer proposals and bankruptcies, and is usually a CA and a member of the Canadian Solvency Practitioner's Association. The trustee's job is to represent creditors and uphold the BIA, but he or she also protects your rights and can help you with financial advice and information. As with other financial professionals, asking your lawyer, accountant, or friends for referrals is a good way to start your hunt for a trustee. You can choose your own trustee, but your creditors (the people you owe money to) have the power to replace him or her if they're not satisfied.
Working with a trustee
Bankruptcy is a unique process, and so what you can expect in working with a trustee is very different than for planners and accountants. For your first meeting with a trustee, you should bring any relevant financial information (see "Proper Documentation,"below). He or she will look at this documentation and discuss your options with you over one or two meetings before you make the final decision to file. If both of you decide it's the right decision, he or she will then have you fill out legal forms that lay out your finances and turn over your assets to the trustee to be used against your debts. Once these papers are signed and filed with the government, you are officially bankrupt and can stop making payments to your creditors. The trustee will notify them of your status, and for the next nine months, any surplus income you earn is given to the trustee to distribute.
In paying your debts, your Secured Creditors have first dibs, and can collect the property they hold a lien on in lieu of your liability to them. Next in line are Preferred Creditors, including any ex-spouses, children, or parents to whom you owe support. What is left is then divided between your Unsecured Creditors.
It can get more complicated, of course. But if this is your first bankruptcy, you've followed your trustee's instructions, and all goes well, no problems should arise, and at the end of nine months, you'll be free and clear of debt -- with a couple of exceptions. Any spousal or child support, or any other court-ordered payments you owe do carry through -- but with most of your debts released, payments that were difficult before should be much more manageable. Remember that this is a brief outline of the process, and to ask your trustee about any concerns you have (for a more complete explanation, read "Clean Slate").
Questions to ask any financial professional
No matter what kind of financial professional fits your needs, there are some questions you should ask to make certain you're dealing with a competent expert -- and someone who's right for you:
What are your credentials?
You should be looking for experts with the proper designations, as well as sufficient experience with situations like yours.
Have you worked with many lawyers?
Ask for a few references and call them: you don't want to find out your accountant, planner, or trustee has a poor reputation or bad practices.
How familiar are you with the legal system? A trustee should be able to explain the procedure to you should you have to go before a judge, and your accountant or planner may be testifying on your behalf about all your financial secrets. Because of this, you'll want someone who has some experience with the law. If possible, find out how any cases that went to court turned out.
What do you think the outcome will be?
Ask the accountant or planner to predict the process and estimate your general chances of getting what you want. What does he or she think is going to happen? If you're speaking to a trustee, ask them how likely it is that you will have problems completing your bankruptcy. If you're not sure the expert is being straight with you, consider someone else.
How much are your services going to cost?
This is an important question in any situation. Ask about the terms of payment, if they offer free initial consultations, and when and how services will be billed. Some will bill you hourly or as the case progresses, and most will ask you for a retainer. Payment for trustees is built into your bankruptcy, and the amount is laid out by the government, so you'll be able to find out fairly easily what these fees will be.
Remember that, in the case of planners and accountants, once a fee is agreed upon and a contract is signed, any additional fees should be by prior written agreement only. You may want to add this to any contract you sign, if it's not already there.
There are several important documents any financial expert will need to see:
You'll also need valuations or other paperwork detailing property you and your spouse own together or separately -- from the contents of a safety deposit box to the car to your home. Although you'll be dealing mainly with "big ticket items," if something is very important to you, make sure it's on your list. If a business is involved, brokerage statements or corporate minute books will also be required. Basically, your accountant, trustee, or planner needs to see any major paperwork that involves the transaction of money -- for both you and your spouse. Only then can they help you begin your road to financial stability.
What do those letters that follow the names of financial experts mean? Here are some common designations:
|CA:||a chartered accountant is qualified to express opinions on financial statements and is often involved in the planning and preparation of income tax filings.|
|CBV:||a chartered business valuator has credentials that include determining how much a business is worth. If you need to know the value of a business for divorce purposes, call a CBV.|
|CDFA:||a certified divorce planner has passed a qualifications exam and is versed in the complexities of divorce finances.
|CFE:||a certified fraud examiner deals with complex financial situations, looking for hidden cash and financial manipulation. Call a CFE if you suspect your ex of foul financial play.|
|CFP:||a certified financial planner will help you improve your overall financial health, from taxes to budgeting. If you want to sort out your finances over the long term, both during and after divorce, look for a CFP.|
Here are some organizations offering referrals to experts in your area:
Certified Divorce Financial Analyst
Business Valuators / CPAs