When a marriage ends, advisors step up

Like other tough life events, the end of a client’s marriage is a complex, emotional transition that provides advisors with an opportunity to deliver real value and deepen one or both relationships. And one of the key decisions advisors must help their divorced clients make is what to do with their matrimonial home — the property they live in at the time of separation.  

Treena Nault has guided multiple clients through the process. She is a certified financial planner with Nault Group Private Wealth, which operates under IG Wealth Management in Winnipeg. 

“Financially, with the right advice and the right choices, their life doesn’t have to be massively impacted,” she said. “I’ve seen people move on and thrive in life, and meet the love of their life, or maybe the second love of their life, and live happily ever after.”  

Give clients the time and space to express their feelings before going straight into numbers and planning next steps, Nault recommended.  

“Really listen and take time to be there for them emotionally first,” she said.  

Sharing personal stories or client stories — without identifying them — is one way advisors can help clients make sense of their situation and what to do about the family finances, Nault suggested.  

“This isn’t something that happens in one meeting and it’s one and done. It takes time to go through it,” she said.  

Advisors can also ask their clients if they’re seeking counselling support and share stories of themselves or other clients speaking to a counsellor and how it helped them. 

Should you serve both spouses? 

Advisors differ in their views on whether it’s a best practice to continue serving both spouses after a divorce. It’s a decision every advisor must make, and individual situations often dictate the right answer. 

Nault believes it’s tricky to protect the interests of both parties after a divorce. Typically, she talks to both partners about that and then recommends that she work with just one of them. “Otherwise, it’s a conflict of interest, in my opinion,” she said. 

After hearing them out, advisors need to focus the client’s attention on a new financial plan.  

“I often say to clients, ‘OK, look, I get that there’s an emotional side to this, but my job is to bring the facts,’” Nault said. “So, I obviously listen, I empathize, I allow that conversation to happen from an emotional perspective and then we get into the financial plan, which really gives us all the answers.” 

What about the matrimonial home? 

Among the most significant assets to be dealt with is the matrimonial home, which represents a powerful combination of financial and emotional value.  

Clients will often speak rashly — they don’t want more change; they don’t want to move the kids. Emotions tend to be especially heightened among those who didn’t initiate the split.  

The most common options include a spousal buyout, where one spouse buys their ex’s share of the matrimonial home and takes sole ownership, or the divorced couple sells the home and each party walks away with half of the net proceeds, said Olivia D’Ammizio, a family lawyer and associate with Shulman & Partners LLP in Toronto.  

Couples can also come to a temporary arrangement where the spouses co-own the home for a period of time or rent out the home and share profits or costs while waiting for a better time to sell. Alternatively, one spouse could keep the home while the other gets a larger share of other assets to balance the home’s value. 

“Some separations take a year, some take three years,” Nault said. “I’ve seen people co-own a home or own a home for another person for their lifetime. There’s no cookie-cutter approach.” 

In some parts of the country, home ownership is out of reach for many single Canadians. D’Ammizio said she sees a lot of divorced couples selling their homes and splitting the proceeds as soon as they can because “people are just finding it unaffordable to pay rent for a new place, as well as the carrying costs for the matrimonial home.” 

Many will list the home for sale — which can take months, given the softness in the current residential real estate market.  

“A lot of my clients, when they’re in these situations, they’re saying either they’re staying in the home until it’s sold or until it’s dealt with, or we need to list it as soon as possible so they can get whatever funds are owed to them, so that they can move on,” she added. 

Advisors should ask clients what they’ve discussed with their ex and whether they have it in writing. Also, ask if there’s one person who’s really attached to the home and wants to keep it, Nault suggested.  

They should also remind their clients that even if they do end up selling the home and splitting the proceeds, they may not be able to qualify for a new home mortgage on a single income. In these cases, advisors could refer a client to a mortgage specialist to help outline their options. 

“It’s very hard, because if somebody’s in … a million-dollar house, but now they can afford to buy a $500,000 house, that’s a big difference in possibly neighbourhood, obviously square footage, all of that stuff,” Nault said. “And one of the first things I’ll say to a client when they’re going through a separation is, ‘This is a very large impact in your financial plan to go from two incomes to one income, so I just want you to expect that things are going to change a little.’” 

For a spousal buyout, the divorced couple must first determine the value of the home. 

“The best evidence is always an appraisal of the home,” rather than relying on online estimates, D’Ammizio said. If a couple cannot agree on a buyout price based on one appraisal, she recommended using the average of two appraisals or a third appraisal if its value is between the first two appraisals. Another option is to get a letter of opinion from a real estate agent.  

Based on the agreed-upon home price, advisors can then calculate the net equity of the matrimonial home.  

When that’s all done, advisors should walk their clients through several considerations such as how they’ll come up with the money to buy out their ex; if they’ll buy out the home through a lump-sum payment, a new mortgage or a combination of both; what their cash flow would be if they opted for a buyout; and how the buyout would impact their other plans such as funding their children’s education or their retirement. 

“Take the time, understand what their priorities are. Maybe for some people, they would say, ‘You know what, in order to keep my children in this house, I’m willing to put off my retirement by 10 years, or five or whatever,’” Nault said.  

“And so, I think it is numbers, but it’s also very personal to each situation.” 

Ultimately, Nault said advisors may want to consult their client’s lawyer and understand what’s in their separation agreement to ensure everyone is on the same page throughout the decision-making process.  

“You have to kind of know what’s being discussed with the lawyer. Possibly there’s a meeting with the financial advisor and the client and the lawyer to get more information out there and to walk through some of the scenarios,” she said. 

Advisors who successfully support a smooth transition for their clients are likely to reap benefits too, Nault said. You’re helping with a complex set of issues when it’s needed most — that won’t be forgotten. 

“You want to explore all the angles with the client and get them through it, and then they will be thankful to you, and they will be loyal to you, and you’ll get great referrals from people you’ve helped through such a large life event.”