Grey divorce presents unique set of challenges
Older couples often have vastly more financial assets – and this comes with its own host of challenges for both the divorcing couples and their financial advisors.
The rising trend of “grey divorce” may not involve the often acrimonious split of a family and accompanying child-care responsibilities with which younger couples who are in the process of separating often have to grapple. But older couples often have vastly more financial assets – and this comes with its own host of challenges for both the divorcing couples and their financial advisors.
“It’s kind of like a death,” says Scott Spence, founder, certified financial planner (CFP) and certified divorce financial analyst (CDFA) at Second Half Solutions Ltd. in Winnipeg, about the dissolution of a marriage among older people. “It changes a lot of things with clients’ financial plans, such as the time horizon in terms of when assets have to be distributed.”
Once rare, grey divorce is becoming an unavoidable scenario for many investors and their advisors. According to a 2014 paper from Environics Research, the proportion of Canadians aged 65 and older who are divorced rose to 12 per cent in 2011 from 4 four per cent in 1981. As well, Statistics Canada published a report in 2011 that found one in five Canadians in their late 50s were divorced or separated – the highest among any age group.
Although more recent data on grey divorce in Canada is not available, a 2017 study from Pew Research Center in the United States found that divorce among people aged 50 and older had increased by 109 per cent between 1990 and 2015.
One of the main challenges that arises when grey divorce takes place is that the couple’s advisor may go from helping both individuals work toward a common goal to assisting two individuals with competing objectives, says Mr. Spence, who specializes in helping divorcing couples to divide their assets and forecast the long-term implications.
“When individuals identify they’re no longer going to be a couple and you represent both, what can end up happening – by the simple fact you manage their money – is you could be in a conflict of interest,” he says.
And it’s mandatory for all financial professionals, Mr. Spence adds, to acknowledge this potential problem with both clients. Yet, he notes that many advisors may not fully recognize the importance of doing so.
“A lot of advisors can view this as administrative work that they’d rather not do when, in fact, it protects all parties and clarifies the role of the relationship,” he notes.
That said, he adds, rules surrounding separation and divorce are not clear among professional bodies, including FP Canada Standards Council.
But while the organization has no specific section in its code of conduct addressing separation and divorce, Damienne Lebrun-Reid, its executive director, points out that there are “several rules that speak to conflict of interest including one regarding a new conflict that comes up in an ongoing relationship.”
As such, CFPs are at the very least expected to notify clients of a conflict of interest upon being informed a couple is separating. And they must document it, she says.
Similarly, Shaun Devlin, senior vice-president of member regulation, enforcement, at the Mutual Fund Dealers Association of Canada (MFDA), says that “an advisor who is informed that a client couple is going through a divorce should consult their dealer’s compliance department … to address any potential or existing conflict issues.”
And because divorce is a material change in the clients’ information, he says, the know-your-client documentation also must be updated.
But Mr. Devlin adds that the MFDA’s code conduct for advisors generally guides them to deal in good faith with each client. As such, separation and divorce does not necessarily preclude them from helping their clients as they move forward in their lives.
Indeed, Marc Lamontagne, founding partner and CFP at Ryan Lamontagne Inc. in Ottawa, has continued to provide advice for both parties – in some cases because that’s what they have wanted.
“In theory, you could see them separately, but I have had occasions in which divorcing couples come in together to ensure they’re getting the same advice,” says Mr. Lamontagne.
What’s important, he adds, is making clear to them that they will receive the same advice and not different guidance to give one party an advantage.
Still, Mr. Lamontagne often prefers that one client eventually seeks advisory services elsewhere because of the potential conflicts. But taking that step can be “scary for clients,” he admits.
Similarly, Mr. Spence says the ideal is for advisors to recuse themselves when clients are going through a separation or divorce, noting that he hands off clients going through these situations to another advisor at his firm. This largely eliminates the problem of conflict of interest and has the added benefit of bringing in “a fresh set of eyes that are in everyone’s best interest.”
Yet, for many investors, separating from their trusted advisors while they’re going through a time when they need help on tricky financial matters can be very challenging – especially as advisors can play a critical role in helping legal practitioners during a separation or divorce provide direction with respect to splitting of the couple’s investible assets.
“[Advisors] generally know their clients’ financial information best, so they can really help,” says Shasta Benaim, an associate with the law firm Bennet Waugh Corne Barristers & Solicitors in Winnipeg, who practises collaborative family law. “Often, once they provide the financials to us, then we take a look at what the division of property should be.”
Still, the law firm frequently leans on specialized advisors, such as CDFAs, to help determine how best to split assets, says Alison Bennet, a partner who also practises family law.
“Some people [who are] financial advisors might not necessarily have the strengths that I’d want them to have,” she says.
That’s because advisors may be good at managing assets or financial planning, but they may not be familiar with how family law intersects and affects the value of locked-in retirement accounts, pensions and unsheltered assets, such as a cabin or cottage. In addition, a third-party specialist brings a needed impartiality to the process.
by JOEL SCHLESINGER