Include a financial plan in separation agreement

Currently, as a result of Miglin v. Miglin and Plaxton v. Bailey, there is no guarantee that the lump-sum recipient spouse will not come back 20 or so years after a divorce settlement and request lifetime spousal support payments.

One way family law lawyers with payer clients are “covering” themselves is to include a clause in the separation agreement stating that the recipient spouse, if she or he wishes to revisit the issue of spousal support, must pay x dollars up front, which would be a reasonable estimate of the payer spouse’s costs to defend the action. This, however, is only a Band-Aid measure.

Another safeguard to prevent the revisiting of the lump sum spousal settlement is the inclusion of a financial plan as an addendum to any separation agreement.

Such a financial plan would detail the recipient spouse’s financial future. The plan would give the spouse a blueprint for distributing the settlement monies. This would be a strong defence to any action taken by a recipient spouse, and it would provide peace of mind for the payer. Associated with this major life transition comes the inevitable dismantling of the financial commingling of family assets accumulated over the lifetime of the marriage. This is a particularly overwhelming and stressful undertaking for a spouse who has had very little involvement in the couple’s money management and financial planning.

One’s ability to find his or her bearings during this period is further complicated by the likelihood of emotional trauma clouding a person’s better judgment at a time when sound decisions are of the uppermost importance.

Financial impact

A financial plan helps both parties determine the shortterm and long-term financial impact of any proposed divorce settlement.

These plans provide valuable information on financial issues that are related to the divorce, such as the family investment portfolios, RRSPs, dividing pension assets, tax consequences, continued healthcare coverage, RESPs, children’s education and weddings and a whole host of other financial considerations.

Financial planning during divorce should reflect an individual’s dreams, hopes and aspirations in addition to meeting day-to-day obligations. It should begin with a personal goal-setting exercise that reflects how the client wants to spend the rest of their life.

The issue is not just, “Can I afford it?”; it’s also “How do I want to spend the time I have left?”

Individuals experiencing marital breakdown must go through a process of self-review to create a new life after marriage. This includes the understanding and ability to emotionally deal with the misconceptions about aging and retirement, attitudes and selfmotivation, the transition from married life to single life, housing choices, and changes to personal relationships. .

The topic of aging is one that many prefer to avoid. Yet, it is a process all of us must go through. We can prepare for aging only if we talk about it and plan for it.

While it may be difficult for some people to picture a situation 10, 20, 30 or even 40 years in the future, it is an essential discussion to ensure that the personal financial planning for the lump-sum settlement will address these potential needs.

Examples of potential needs include possible long-term health care needs; living accommodations when one can no longer care for one’s self on a day-to-day basis; or personal and financial powers of attorney and wills.

While aging may be an uncomfortable subject for individuals, the financial plan needs to break down these barriers to ensure that individuals have plans that anticipate real potential scenarios.

What may be missing in most divorce processes is financial expertise. In most cases a qualified Certified Financial Planner (CFP) is needed. CFPs, through training, experience and a strict adherence to a code of ethics are able to estimate the long-term impact of these settlements. A CFP can help clients make financial sense of these proposals.

When employing a CFP to create a financial plan for clients during this transition, it is very important that the CFP has a large amount of errors and omissions insurance coverage.

This will offer further protection to lawyers and their payer clients.

The financial ramifications of a divorce can be devastating. But with proper planning and expert help from professionals specializing in financial planning and just divorce settlements, clients can increase their chances of arriving at a settlement that fully addresses their long-term financial needs, and those of their spouses.

And, of course, a financial plan is also a tool to help prevent lump-sum-recipient spouses from coming back in the future to request lifetime spousal support payments.

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