Breaking Up is Hard to Do

Planning Considerations When Untying the Knot

Abbotsford Estate Planning Council

Jane Shanks, BA, LL.B, TEP

Regional Vice President, Wealth Planning

Agenda

Overview

Divorce Models

Untying the Knot

Divorce Professionals

Divorce: the numbers

43% of marriages end in divorce before the 50th wedding anniversary

70% of men and 58% of women will remarry

35 year itch: “grey divorce” is a growing trend

Increasing number of clients in 2nd and 3rd marriages

Divorce rates of 2.5 times higher for people in remarriages

Fears among Baby Boomers

Being alone

Failing again

Becoming financially destitute

Never finding another to live with or marry

Staying angry or bitter over time

Depression

Not seeing children

It is common for divorcing clients to ask for your help

Divorce ModelsWhich one is right for your client?

Kitchen Table

Do-it-yourself

Couple mutually agree on settlement

Once in writing must seek independent legal advice

Kitchen Table

Litigation

Each party hires a lawyer to advocate their positions

Lawyer’s duty to get best deal for client

If agreement can’t be reached then court will decide

Litigation

Mediation

Couple meet with mediator to discuss issues and negotiate settlement

Mediator doesn’t take sides, make decisions or give advice

Still need independent legal advice

Mediation

Collaborative

Each party hires a lawyer specifically trained in collaborative process

All formally agree to work together in a respectful and honest manner

Encourages an understanding of each party’s interest and concerns

Collaborative

Divorce Professionals

Family law lawyers

Collaborative lawyers

Family Health professionals

Child counsellors

Mediators

Business Valuators

Accountants

Financial Divorce professionals (FDS/CDFA)

Role of Financial Divorce Professionals

Helps each spouse establish needs and hopes for the future

Examines financial issues, does not provide legal advice

Assists spouses in gathering documents

Provides financial analysis taking into consideration inflation and tax consequences

Counsels clients on developing realistic budgets

Role of Financial Divorce Professionals

Assists lawyer in designing a settlement proposal that will maximize both spouses satisfaction

Provides insight into pension plans, investments and insurance

Determine assets that may not be divided

Educates clients about tax and other financial consequences of retaining or giving up certain assets

Role of Financial Divorce Professionals

Hands back clients to their other professionals for implementation of settlement and future planning

Provides unbiased presentations that show short-term and long-term financial impact of a proposed settlement

Offers insight into pros and cons of various settlement proposals

Untying the knot

• Most people only fight about two issues1. Their children

2. Their money

• Tips:• Avoid getting in the middle of a fight• Suggest counsellors and child specialists to help clients

move along with minimal damage

Non registeredinvestmentholdings

Employmentbenefits

AutomobilesFamily

business

Saving for children

(RESP’s)

Retirementassets

Home & recreationalproperties

Typical Assets

Attribution on Property Transfers between spouses and common-law partners

Property Transfers after Separation or Divorce

Property Transfers - residential real estate

Property Transfers: Who gets the Principal Residence Exception

A family is allowed to designate one property as a “principal residence”

Vacation property may qualify as the principal residence: “ordinarily inhabited”

Can only claim one property as the principal residence for the same years of ownership

Separated couple is not automatically entitled to two principal residence exemptions

Must be living separate and apart for a full calendar year

Property Transfers: RRSPs and RRIFs

Transfers as a result of separation or divorce can be tax deferred if:

Transferred directly to another

registered plan

Transferred directly to another

registered plan

Transfer is made pursuant to a court order or

written separation agreement

Transfer is made pursuant to a court order or

written separation agreement

Form T2220Form T2220

Property Transfers: RRSPs and RRIFs

Planning

Point

If there is a significant difference in marginal

tax rates, effective way to satisfy equalization

obligations

If there is a significant difference in marginal

tax rates, effective way to satisfy equalization

obligations

Property Transfers: TFSAs

Direct transfers as a result of separation or divorce are classified as “Qualified Transfers” if:

Living Separate and apart

Living Separate and apart

Transfer is made pursuant to a court order or

written separation agreement

Transfer is made pursuant to a court order or

written separation agreement

No impact on either person’s contribution roomNo impact on either person’s contribution room

Deductibility of support payments

Periodic payments made

pursuant to a separation

agreement or court order are

generally deductible

Periodic payments made

pursuant to a separation

agreement or court order are

generally deductible

Lump sum support

payments generally not tax

deductible

Lump sum support

payments generally not tax

deductible

Deductibility of support payments

James v. The Queen, 2013 TCC 164

Resources and references

• Child Support Tables, custody definitions and online lookup, www.justice.gc.ca

• CPP Credit Splitting Upon Divorce or Separation (forms and rules) and request for CPP Statement of Earningswww.hrsdc.gc.ca

• www.DivorceFinancialPlanners.ca

• Provincial Maintenance Enforcement Program

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above, please make sure to see your Assante advisors for individual financial advice based on your personal circumstances.

Thank you