Retired clients face unique financial challenges when they divorce. You, as their financial advisor, can provide valuable help.
Unlike those in other age groups, retired clients may not have the time — or the ability — to work in order to supplement a reduced income, says Caroline Dabu, vice president and head of retirement and financial planning strategy with Bank of Montreal in Toronto. As their financial advisor, it’s your responsibility to help your clients maintain, as closely as possible, the lifestyle they had prior to divorce.
This may be easier said than done in some cases. For example, taking into account employer pensions, old age security and Canada Pension Plan payments, Dabu says, a retired couple could have an annual income of $71,000. After a divorce, that income could be reduced for one partner to $46,800, while he or she will face higher daily expenses.
If each spouse has a separate account with you, be sure to treat them as separate clients. If they have a joint account, both must be present when discussing anything related to their finances. Consider working with one client and referring the other to a colleague.
Here are five tips to keep in mind when working with retired clients going through a divorce:
1. Check the budget
Take a look at the day-to-day expenses of a retired couple in the process of a divorce.
Your clients need to put pen to paper and map out how life is going to look financially now that they’re single, Dabu says. Review the clients’ expenses and look at how income shortfalls can be bridged or expenses pared down.
2. Find opportunities to share
Look at assets such as RRSPs and pensions for opportunities to share or equalize the income without incurring additional taxes, says Stephen Grant, a partner with McCarthy Tétrault LLP in Toronto.
For example, if one spouse has an RRSP with $100,000, he or she can move $50,000 to the other’s RRSP on a tax-deferred basis, he says. That way, there’s no need to liquidate the asset and thereby lose some of its value.
Again, be aware of potential conflicts. If it’s a joint account, both clients must be present.
3. Consider insurance
A divorcing client’s income can be protected with insurance.
If the client is receiving alimony or spousal payments, Dabu says, he or she should consider taking an insurance policy. Then, that client won’t have to worry about the sudden loss of income if his or her ex-spouse dies and can therefore no longer make those payments.
4. Changing charities
Updating wills and powers of attorney is at least as important for divorcing retirees as for any other group. While updating the clients’ estate plans, take the opportunity to review their philanthropic goals.
One client may no longer wish to donate money to a cause the couple had planned to leave money to together, Dabu says. Ask about what he or she would like to do personally with the assets.
Make sure the client has discussed the updated plan with family members.
5. Be there as a resource
Make yourself available, says Dabu, should one partner feel overwhelmed at having to handle finances alone.
If one client has little understanding of finances, she says, you can help that person take charge of his or her finances through seminars or other educational tools.