In this podcast, Sharon Numerow, a Certified Divorce Financial Analyst and Divorce Mediator, discusses what you must know about investments, RRSPs, pensions and other property.
This TeleSeminar helped take back control so you can stop wondering:
- Will I be okay?
- What property should I retain?
- What if I know very little about the family finances?
What attendees learned at this TeleSeminar?
- Is a 50/50 Property split always equal? And if not, what must you consider?
- Can you afford to keep the house? How can you decide?
- What must you know about investments, RRSPs, pensions and other property?
- Are there other financial factors in divorce?
Hosted by: Dan Couvrette, CEO, Divorce Magazine
Guest speaker: Sharon Numerow, Certified Divorce Financial Analyst and Divorce Mediator. Sharon Numerow is a Certified Divorce Financial Analyst and a divorce mediator, a speaker and the founder and owner of Alberta Divorce Finances. She is also the proprietor of a personal income tax return preparation business. She has worked with clients and lawyers for more than 10 years consulting on divorce finances. She can be reached at (403) 703-7176, Sharon@AlbertaDivorceFinances.com. View her firm’s Divorce Magazine profile.
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Read the Transcript of this Podcast Below.
Sharon Numerow on the 4 Financial Secrets For Your Divorce
Dan Couvrette: So Sharon, lets get started. Why don’t we start at the beginning? How and why did you get involved in the field of divorce?
Sharon Numerow: Probably for the reason that many divorce industry professionals do so, which is I went through my own divorce. I embarked on my own personal journey over 10 years ago. It was a three year journey, and it opened my eyes to the fact that there was such a great deal to know in many different areas — not just the financial area. And if someone like myself with a financial background was struggling, it occurred to me how much harder it was for people without financial knowledge.
I also went on to work for some financial professionals, and met a lot of tax clients who actually had financial backgrounds but found that handling the emotional part of their divorce was just too much to deal with, and led to a lot of financial mistakes. So I began to realize that the emotions involved in divorce were too much for most people to handle, and those people really needed financial guidance. So I decided to make it my life’s work to educate people in this area, so that they could become empowered decision makers in their own divorce.
Okay, well that all makes sense given that I went through my own divorce which was the reason why I created Divorce Magazine. I can completely understand your desire to do that, and also the intention to help yourself by educating yourself and helping other people obviously makes sense. Now, I think you know a lot of people when they are going through a divorce say to themselves: “I don’t need a financial professional because my lawyer should be able to handle all of that detail, and should know about the financial aspects of the divorce.” What do you find that lawyers know, and what do you find that they are not always familiar with and knowledgeable about?
Sharon Numerow: Well like you say, that is absolutely — and sometimes to a fault — what most people think. They think automatically: “I am going through a divorce, I will hire a lawyer and then I don’t have to worry about anything else”. So really what is missing in most divorce negotiations is that financial expertise. I always say to people that I don’t advise people on the law, and lawyers shouldn’t be advising people on finances.
Now, having said that, there are — just like every profession — some lawyers and mediators who have gone the extra mile. They understand some areas of the finances, but by and large lawyers are experts in the law. Their job is to inform clients of the law and get, in their opinion, what is the best deal for their clients.
The other reason that I strongly recommend people to benefit from the services of a financial professional is because they think their lawyer is going to hold their hand, help them make the decisions, and talk to them about how to make those decisions. However, when people begin to work with their lawyer, they quickly find out that lawyers don’t want to be therapists or financial professionals, and in fact are not trained in either of those areas. I am always amazed at how stunned people are that that isn’t what their lawyer is going to do for them. So those really are probably the main reasons why it is important to get a financial professional involved.
The way I explain it, is that I am there as a support to your lawyer – not someone who is going to overrule, but someone who is going to provide unbiased support to help improve your negotiations or your settlement options.
Probably in the same way that people really shouldn’t use their lawyer when they need guidance from a therapist, counsellor, and that sort of thing to help them with the emotional issues of divorce, they shouldn’t use their lawyer for the financial aspect, either.
Sharon Numerow: Yes. The good lawyers tell you right away: “I am not here to be your therapist and I would be too expensive.” That isn’t their training. I mean therapists are specially trained for a lot of years to help you through the emotional part of it which, to be honest in divorce, is just as important as the negotiations are.
Can you explain what a CDFA™ is (Certified Divorce Financial Analyst), and what distinguishes them from regular financial planners?
Sharon Numerow: The Institute for Divorce Financial Analysts is the governing institute, and anyone can visit their website to find out a lot more information then I might share. But quite simply, a CDFA™ is a financially trained professional who is then further trained by the Institute to help people to understand the short and long-term financial and tax implications of both property and income decisions that they will have to make in their divorce. Their website is www.InstituteDFA.com.
What do you feel is the biggest challenge in coming to terms for the divorce financial settlement that people have to overcome? What do they have to consider and what are the challenges? What is involved with that? Where should people start or get to?
Sharon Numerow: Probably the biggest challenge for people in coming to a settlement is two-fold. One is the lack of knowledge — not only that most people have with respect to financial knowledge — but the lack of knowledge that most people have about their own family finances. So a lawyer gives you a whole comprehensive list to bring information in to them, and it is like Greek for usually at least one of the partners in a relationship. So that is the first problem is that people have a lack of financial education — period — and then they have a further lack of involvement in their own family finances. To make decision on what to retain is like conquering Everest without much training.
The second challenge is something that you have already touched on, which is the emotional part of it. When you don’t deal with that immediately and the emotions take over, trying to come to a reasonable settlement while struggling with how much you dislike the other person is a big challenge. Most lawyers, I think, would tell you that the emotional part of the negotiation probably is the number one issue that detracts from people coming to an agreement more quickly.
I think it could be the story of people fighting over the dishtowels instead of focusing on the future, and what decisions are going to really mean to them that they are making now.
Sharon Numerow: Yes, and it basically comes down to nobody really cares about the dishtowels or the silverware — they just want to fight about it. I can tell you that whatever the laws are in your Province or your State, I know in Canada, for instance, you are not going to get more than half because he or she did something terrible. So fighting about it is just going to make the lawyers richer and waste your time and your energy. Unfortunately, when people don’t keep those emotions in check, negotiations take a lot longer and it become a lot more stressful.
Right, in some States by the way, there is some consideration given for who has left the marriage, whether there is infidelity in the marriage, and it does affect some results. But lawyers tell me that it normally is not a huge influence on the outcome. But it can affect results, so people who are listening into this should check in with professionals in your State or Province and get details about that. Sharon, as a CDFA™, do you normally work with one of the parties? Or do you work with both of the parties? Or can it happen either way?
Sharon Numerow: For most CDFAs™ it can happen either way. Most of the time when CDFAs™ meet with an individual, it is because they are contemplating divorce or because they are in the legal process, and meeting together is simply not an option. Most of the time meeting with couples is when relations are more civil, more amicable, when they are going through mediation, or when the lawyers are working in a more collaborative atmosphere.
So what are some of the financial issues that are most often missed, or the financial issues that have to be gone through when the divorce agreement is being created?
Sharon Numerow: Probably the most missed (thought not necessarily the most important) issue in divorce are about which partner or spouse is going to make claims — most often with respect to the children on the tax return. So depending on if you are in Canada or the States, there are lots of different deductions and credits available and those are, I would say, 90% of the time never referred to in the divorce agreement. And so what happens is the first time after they have an agreement, the former couple files their individual tax returns – with two different tax preparers or accountants – and each of them asks: “Are you claiming this?” and neither ex-spouse knows the answer. If a couple is fairly amicable and civil, they can have a discussion. I even work with couples who do what is most beneficial under Canada Revenue Agency rules and share the tax saving. But in most relationships, if that isn’t the case, the lawyers quite often unknowingly leave a couple with a big headache down the road come tax time.
The second issue is what I always refer to as my tag line, which is a 50/50 division of property is not always equal. So if a couple has $500,000 in property, people think: “Well, if the law that applies is 50/50 we each get $250,000 then we are equal and everybody is happy.”
When you refer to property, are you just talking about real estate or are you talking about all property?
Sharon Numerow: All property, all assets.
Right — your car, your home, everything right?
Sharon Numerow: Absolutely. Everything that you own, basically. So what I wanted people to take away from this is that in divorce or really, in life, $400,000 in a bank account is not the same as $400,000 of stock in trading account, and it is not necessarily equal to $400,000 value in a rental property that you may have. There are tax implications that affect some assets, now at the time of disposal. So I don’t want people to be confused. Upon the sale of an asset, some have significant tax implications. And what often happens is they are overlooked in the divorce negotiations, and then down the road someone goes to sell the cabin or the stock, pulls out their RRSP and they lose a certain amount depending on the tax effect, and they are quite surprised and quite shocked. So even if you are not able to consider the value of the tax implications when you are trying to divide your property, at the very least you should be in the know and understand the future tax implications, so that you can plan for them, and so that you understand the implication of everything that you are retaining.
So I am assuming that some of your experience is with people who have gone to an attorney or lawyer in Canada, and they feel that their lawyer doesn’t have a good understanding of the tax issues. So if somebody is already going through a divorce and they have retained a lawyer, can they still come to see somebody like you to get some clarification?
Sharon Numerow: Absolutely. I always say to people that it is never too late to get information until you have signed the agreement. Some people come to me and say: “Well my lawyer told me what we verbally agreed to, and that’s it.” I tell them that it’s their financial future. And if they have to upset their lawyer, and if they have to go spend a little time going back to the drawing board so they are not missing out on $10,000 or $50,000, or at the very least if they don’t understand what’s going on in the negotiations, then they shouldn’t be afraid because this is the rest of their life — and they’d better make good decisions. They want to look back six months or five years from now and feel that their agreement was fair and stands the test of time. Otherwise, I think, they are doing themselves a disservice.
In general, you are always best to educate yourself as much as you can and rely on professionals. But the truth is the more informed you are, the more benefit you can get from working with professionals. Do you agree with that?
Sharon Numerow: Absolutely. I always say to people when you go through a divorce, you should have a team, including a financial professional, a lawyer, a therapist, and that you should be working with your financial planner. It can be an overwhelming journey and people don’t realize that most of decisions that you make in your divorce cannot be overturned. It is going to determine your financial future and often the future of your children. So do it right the first time, because there are no second chances.
Now, I had this experience with my own divorce with my former wife, who fortunately I get along with very well. But back when we were going through our divorce, it was certainly challenging to say the least. She didn’t feel like she was going to get her fair share. Is there any kind of preparation that you can do and information that you can gather – and maybe you have to work with your attorney as well as a financial person to determine – whether one is getting their fair share through their divorce?
Sharon Numerow: Yes. I always tell people going through a divorce to listen to your gut. It is one of the only times in life when people — especially women — tend to ignore their intuition. If your intuition is telling you something is amiss in this settlement, or something doesn’t feel right, then you absolutely should pursue additional education in some of the areas that you are uncomfortable with in your own divorce. Now, the more respectable and the more civil you and your spouse can be, obviously the fairer things are going end up working out. But you should always follow your intuition; especially when people have more than a house, and you have other types of investments. You should always pursue additional information. It is never too late.
Can you tell us if one person is more dominant in taking care of the financial aspects? Is that still your experience?
Sharon Numerow: I would say in almost every couple with the exception of maybe 10% where both are involved, in probably 90% of couples it is one person – 75% of the time it is the husband, and 25% of the time it is the wife who is responsible for the money. Just like anything else, people divide responsibilities to make life easier. And when it comes to divorce, one person will say: “He or she wouldn’t include me,” and the other person says: “He or she never wanted to know,” which is part of the reason why they are getting divorced. But absolutely, one of the people is almost never involved.
Right, and some people have a concern that assets have been hidden or money has been tucked away. Is that more a lawyer’s job, or is that your job to help people ascertain whether that is true or not? How does that work?
Sharon Numerow: Basically what I tell people —and I think most lawyers would agree with this – is that if you think money is being hidden then for starters, it is not easy to hide money. There is a paper trail for everything. So unless someone has been planning this for sometime, it is very difficult to hide money without some professional finding the paper trail. Number two, I always tell people unless we are talking about a lot of money, don’t waste your time and money. Don’t go looking for $1,000.
Right, they will spend more money to find it.
Sharon Numerow: Exactly, absolutely. But if you are talking about significant amounts of money, you have to hire a forensic accountant. Forensic accountants are very expensive and the process is very time consuming and very lengthy. So they are looking at a large amount of money. I know in a lot of Canadian cities, the fees are upwards of $50,000. So you better be looking for a lot of money or don’t waste your time.
Right, you have to let that go. Our goal in educating and helping people through divorce through Divorce Magazine and DivorceMagazine.com is always to help you move on, let go of the passed and move onto a brighter future. So you touched on saving money by not going crazy looking for $1,000. Is there any other ways that you can recommend that people can save money when they are thinking about or going through a divorce?
Sharon Numerow: Yes, absolutely. The first thing I would suggest to people is be prepared; especially if you are working with lawyers. The more preparation you do, and the more homework you do, the less expensive it will be. So for example, if the lawyer gives you a list of the financial disclosure and you gather up a stack in a very disorganized fashion and drop it on the lawyer’s desk, the lawyer is going to either have to go through it or, in a larger firm, have a student or an assistant go through that — and that is a lot of hours at a very expensive rate. So for example, I know myself and a lot of CDFAs™ put together a net worth statement that clients take that back to the lawyer. The lawyers have all of the supporting documents, but they are already at a point where they can move forward because they have a comprehensive, easy to follow list. Most lawyers don’t turn away people doing things like that. That is probably the most important advice: lots of preparation, do your homework, be very organized and thorough, so that you are not spending that time with the lawyer — because that isn’t what you want your lawyer to spend their time doing.