Disability Income Insurance – two myths debunked

Most people know at least something about this product – usually called DI – however there are a lot of misconceptions and I am going to try and sort out a couple of the main ones here.

Myth – none of the policies ever pay and if they do pay, you have to be nearly dead!
While it is true that there tends to be some litigation or mediation involved for many claims, most situations where payment is contested by an insurance company involve either a lack of full disclosure of pre-existing conditions or issues arising from the claim itself concerning the true extent of disability. When answering the medical, personal habits and activities question, make sure you disclose everything, regardless of how trivial it might seem. Ensure your advisor is accurately recording your responses because you are responsible for what is on the application even though someone else wrote the information. All insurance contracts are defined as contracts of the “utmost good faith” and the insurance companies have a legal right – and responsibility – to hold to that definition. Trying to hide or not disclosue information such as recreational drug use or even something such as mountain biking, can result in the claim being denied.

As for the second part of this Myth, it is unfortunate that news reports only focus on cases where benefits are being denied, not the hundreds of millions of dollars that are being paid. Cases that involve obvious physical or medical injuries or damage are very rarely questioned – it is the potentially ambiguous cases that get challenged. Many such cases involve soft-tissue injuries which don’t appear on traditional X-rays, MRIs or CT-scans – it is the client’s word and most medical practitioners will err, as they should, on the side of caution and support claims for disability when requested. Believe it or not, the insurance company does want to pay the claim – but only the legitimate claim. Soft-tissue cases are very hard to evaluate but there is new technology that is now being used – IR scans – Infra-Red scans of the human body. Quite interesting to see actually – the scan measures heat being radiated and displays this on screen or printed hardcopy in living colour! Our bodies are miraculous compensators and the body does its best to heal itself. It does this by sending more blood to injured parts of the body – and concentrations of blood are WARMER than the surrounding tissue. Guess what, the higher temperature areas appear in RED on the IR scan and it is very easy to see if there is indeed an injury to soft tissue, because the affected area now appears bright red!

Guess what – no concentrated area of heat, no soft-tissue injury and therefore no valid claim!

If a claim is denied, there is always a sound reason for that decision – insurance companies don’t take those decisions lightly; they know it will end up in the media somewhere. When you do see such stories, don’t judge by the headlines; read the facts. Headlines are written to get your attention and mine – they do not tell the entire story.

Dividing Assets in Divorce

Deciding how to split assets is more than just dividing the values on paper.   People often make the mistake of believing that dividing everything in half is the simplest and fairest way of handling things.  This is not necessarily true.  People need to pay attention to the decisions they make about dividing property  and consider the long term  consequences.

Assets differ in a number of ways.  Some are liquid like cash. Some assets like RRSP accounts are tax deferred. Some assets need to be valued in a specific manner according to family law rules and regulations. Investments may have a differ value after taking into account possible capital gains taxes.

Sometimes assets have an emotional connection that may have more worth more than the actual dollar value such as a house, business, or family heirloom.

Assets may have costs to consider.  A couple may have a $400,000 investment  account and a house worth $400,000 (mortgage free).  The assumption is that if one spouse takes the house and the other takes the cash, this results in an equal division.    Keeping the house has costs such as property taxes and upkeep and maintenance. The investment account will be growing over time earning interest. It may not seem quite the equal split over a period of  time.

Debts are also part of the division of marital property.  Allocating debts in divorce may mean paying them off, refinancing, or applying for new debt.  Different types of debt carry different fees, charge, penalties and terms.   Just because you have $10,000 left on your car loan and $10,000 credit card debt doesn’t mean that the car loan should go one spouse while the credit card debt goes to the other.

Divorce settlements are often agreed upon with limited insight into the long-term consequences.  As a result, settlements that seem to be fair and workable initially do not necessarily stand the test of time.  Therefore,  I would recommend the services of  a divorce financial planner  when working on your settlement  to show you  how decisions you make today will affect the rest of your life.

The Financial Concerns with “Grey” Divorce

Overall divorce rates have been dropping over the last couple of decades – with one notable exception. Divorce rates among  people now in the over-50 age group have nearly doubled over that same period.  Here are some financial concerns that couples in this situation should think about:

  1. Housing – Can you afford to continue living in the house you’re in. What’s the cost of moving?
  2.  Short  term & long term financial stability – Need to create a budget allowing for  changes in lifestyle which may include paying off debt and increasing savings
  3.  Lifestyle adjustment –  Older couples have less time to re-establish themselves financially.  You may be faced with liquidating assets to maintain lifestyle. You may face living on half of what you planned on for retirement.  Living longer and faced with the fear of  outliving savings
  4. Retirement funds – RRSPs/ LIRA accounts are divisible property.
  5. Company Pensions – They can be considered an Asset or Income.  New rules about valuing and dividing pensions in Ontario Jan 2012
  6.  Insurance  – You need to understand what you currently have.  Going forward as a single person, you’ll need to consider life, property/casualty, disability and critical illness insurance
  7.   Medical Benefits –  can you get continued coverage on your “ex’ plan.. who qualifies as “spouse”  How much will individual  “plan” cost.. is it worth it?
  8.   Account Beneficiaries – you need to consider who are current beneficiaries , if you want to change them and any tax implications in making those changes
  9.   Getting back into the workforce.. Hard for anyone  who’s been out of the workforce for a period of time to get back into the workforce
  10.   Changing your will –  you may have to look at beneficiary designations as well as who is your  Executor
  11.   Business – Your business may be your biggest  asset. What’s if really worth?

 It’s not easy to deal with the end of a marriage..especially  if you’ve been together for a long time.  I welcome you to visit Mutual Solutions    –  providing complete divorce solutions  if you are  considering ending a long term marriage. 

 

Who’s Handling the Family Finances?

I met with Amy (not her real name) the other day who told me she managed her finances perfectly well while she was single. Once she married, she agreed to let her husband handle the family finances. Now facing divorce, she found herself in financial difficulty because of her husband’s spending habits. She regretted not paying attention to the family finances  during their marriage and had to deal with  the added  guilt of not being aware of key financial information when the marriage finally ended.

When we marry, most coupled agree to a practical division of labour and responsibilities.  Each partner takes on specific “jobs” throughout the marriage. One may take out the garbage and handles the carpooling duties while the other spouse agrees to prepare meals and pays the bills. As we’re creatures of habit, we tend to keep those same “jobs” for our entire married life.  If it hasn’t been your “job” to deal with the finances, it is imperative that you stay in touch with the family finances regardless.

How do you do that?

You should attend meetings with accountants, financial planners, insurance agents to develop their own relationships with these key advisors. Too often I hear women say  “I ‘ve never even met the insurance agent” or “I’m finding it difficult to get information from the accountant since he and my spouse are old friends and golf together every weekend.”

You should look over monthly bank statements and credit card bills even if you are not the partner actually making the payments.

Pam (not her real name) found a lack of her own active credit history worked against her as she was offered high rate cards with small lines of credit when she applied for a card on her own after her husband left. You should be sure that the credit card you are using has been set up in your own name and not an account in your husband’s name with you being simply an authorized user. 

Couples should keep three bank accounts (his, hers and ours) and maintain separate credit cards.

Couples are divorcing at later ages.  Many married women don’t make retirement savings a priority. If your husband is the main wage earner, you  trust him to save for  your retirement.  Clare (not her real name) assumed the Spousal RRSP her husband set up belonged to him and not her and wasn’t clear that he hadn’t been adding to her Spousal RRSP for awhile.  You need to understand that once you’re on your own, you need to make saving for retirement a priority.

Looking over a spouse’s shoulder from time to time is important even if you trust they’re doing a good job.

My divorce will cost what?

I was recently at a lunch meeting with other divorce professionals… and the topic of costs of divorce came up. We all face the “what do you charge and how much will it cost question” that all potential clients ask.  People facing divorce all have some preconceived ideas based on a friend’s experience, hearsay, media reports etc. Most people believe their own situation is not a complicated one and should fit in the “average cost range”.   As experienced professionals, we know that few divorcing clients fit the “average model” and the “cheapest price’ may not be that cheap in the long run. You only have one chance at a settlement which will affect you for the rest of your life. You want to be sure to get it right.

So how do divorce costs pile up?

The choice you make in how you will arrive at a settlement agreement directly affects the cost.

A do-it-yourself scenario where you work everything out between yourselves may be very effective and least costly but may best work in situations where there are no children, few assets and fewer complications.

Mediation allows couples to come up and come to agreement mainly on their own with a mediator who facilitates with the couple in reaching an agreement. Couples share the cost of the mediator. Each spouse in turn may have their own lawyer providing independent legal advice as required.

Collaborative Practice involves clients each with their own lawyer and the possible involvement of other professionals such as family specialists and financial specialists all working together to reach an enduring settlement.   A Collaborative divorce is a holistic approach where each professional charges at their own rate and divorcing couples have control over how much involvement from each professional there may be depending on their own  unique needs.

Traditional litigation can be costly if negotiations fail and end up in court.  Trial costs can be  enormous.

Legal fees represent only part of the costs. Other factors can impact the total cost of your divorce, such as:

  • The nature and complexity of the couples’ situation itself.
  • Your lack of financial knowledge or familiarity with your own finances
  • The need for involving other professionals to assist with valuations of such things as home, other properties, pensions, businesses,  stock options, tracing assets.
  • Your emotional state which may affect the duration and cost the time involved in reaching a settlement
  • Your decision to fire lawyers or lawyer’s decision to fire you.

The “what ifs” are the most painful and avoidable elements in divorce everyone should face head on. You should embrace the opportunity to pay for this knowledge to have peace of mind post-divorce. A divorce financial planner is the expert you want and need during divorce to make strategic recommendations in a cost-efficient manner no matter what method you choose to deal with your divorce.

The expertise of divorce financial planners is essential during divorce: To help budget for this process; source funds to pay for the divorce; educate clients and professionals about complex financial issues; analyze choices with greater expertise and less expensively than lawyers; produce precise analysis for desired outcomes; and provide financial counseling to clients post divorce. This is what you get when you pay for it!

Top of Form

 

Dis-Orientation: Back to School and Divorce

Traditionally, autumn is a boom season for divorce, particularly for couples, who wait out the summer at the cottage before returning home to cut their marital ties. Many couples considering splitting decide to wait until after the holidays to break the news to their children. How are these parents going to approach their separation or divorce – and how will it affect their children?  
Obviously school-year separations can be difficult for school-age children. Parents need to bend over backwards to minimize the changes and transitions in their child’s life so as to keep school-related schedules, after-school activities, playtime with friends and other routines as much the same as possible.  

Parents with university aged children face the additional burden of having kids who are moving away from home.  The added stress of dealing with ever increasing tuition costs and related school expenses makes divorce at this stage more complex.

As couples work through their separation agreement, they should be aware of the many financial issues that affect them and their children beyond the traditional items of child support.

They should be considering such things as:

  • Is there enough savings set aside for tuition and room& board expenses
  • How will any shortfall be funded by each parent?
  • Who manages any RESP plan set up for the student?
  • What additional expenses will students/parents incur as a result of parents living apart
  • Who will benefit from any tuition tax credit available to transfer to a parent

Sending kids off to university is an exciting and challenging time for both students and parents alike.  Dealing with divorce at this stage in your family’s life adds additional challenges.   If you need help sorting through the financial issues around these issues, we may be in the position to help.

 

When You are the One Paying Support

According to a recent study done by Prudential Insurance in the U.S. of  the 1,140 women and 604 men surveyed,  it was reported that 22% of women ( married or with a partner)made more money than their husband or partner.

This economic statistic is certainly a factor why women increasingly are paying support. However, in our society, women seem surprised to have to pay support even if they earn more. As the financial gender gap continues to narrow, an increasing number of women involved in a divorce must confront the possibility of paying support to their spouse. (AKA, “Manimony”).

I have assisted many divorcing women who face the prospect of paying support. Women who have worked hard building careers, taking care of children, dealing with aging parents, feel that they have contributed more than their fair share while married.

This also means that women are increasingly responsible for their finances and investment decisions. This is an area where women have less confident in their knowledge of finances. This adds addition pressure and concerns for women who have to  deal with ongoing payments along with  managing their current lifestyle and worrying about retirement.

Are you someone who makes more money than your spouse? If you found yourself in this situation, how did you deal with this issue?

Grey Divorce Challenges

According to the most recent statistics available from  Statistics Canada (2008) , there were 852 divorces where both partners were 65 and older.  Based on my experience and the clients I see, this trend is growing.  When divorcing after a long term marriage or at an age where retirement is closing in, such  ‘grey divorces” pose unique challenges.

If one spouse stayed at home while the other worked or has retired, it is difficult to face the financial realities of dividing assets and debts as well as  splitting retirement income. Many people assume that after divorce, they expect to keep same standard of living through the division of assets and spousal support. The ex-spouse receiving support may have to eventually  earn his or her  own income. Finding employment can be very difficult in the current economy, especially for those over age 50.

After years  of marriage, divorce  at this stage of life can be a  financial as well as am emotional  shock. Couples facing divorce  at older ages are more likely to suffer from medical problems,  and complicated family issues. These issues require careful attention, management and support. Working through a settlement outside the courts, through mediation or collaborative divorce  allows “grey divorcing” couples the  opportunity to look at their futures and create a settlement that can meet their original retirement plans.

Since most of the settlement issues are financial, working  with financial professionals  who specialize in divorce is critical.  They can help identify all assets, debts and income from the marriage.  They can help develop realistic post divorce budgets. They can help couples, working together with their  lawyers/mediators,  make a plan to match the divorce outcome to  their desired lifestyle after divorce and into retirement.

DIVORCE TALKS – GREY DIVORCE

For many people, the thought of divorce is overwhelming. Not surprising when you consider that almost all married people centre their lives around their spouse, their children and their home. Divorce changes all of that. It depends on how you approach the situation, who you talk to, and how motivated you are to protect the dignity, integrity and long term interests of your family.

Divorce Talks is a series of live sessions for people who are thinking about, or in the process of, getting a divorce. Mutual Solutions, an association between Eva Sachs and Marion Korn, a family law lawyer, hosts every Divorce Talks session. These sessions help someone considering separation gain an understanding of the decisions they will need to make, and how to move to a positive outcome for everyone. Knowing what must happen, what can happen, and what your options are will make a huge difference in the outcome for you and your family.

Our next Divorce Talks session is Tues July 17th where we will be discussing the unique issues for couples separating later in life.  For the new generation of   ”empty – nesters”, divorce is increasingly common. Though overall divorce rates have declined since spiking in the 1980s, there has been a rise in “grey divorce”. The issues are significantly different  for someone in their 50’s or older than someone in their 30’s or 40’s.

If you or someone you know, is considering a divorce, join us for a conversation. Eva and Marion will talk about the things that matter the most when thinking about separation and divorce – finances, kids, and your future.

For details, go to http://mutualsolutions.ca/divorce-talk/

 

How do I know if I need Financial Advice in my Divorce?

By Eva Sachs CFP CDFA

Certified Divorce Financial Analyst and Founder of Women in Divorce Financial

“  I just want what’s fair …I just want what I’m entitled to.”

If it was just that easy, divorce lawyers & courts wouldn’t be busy.

My  approach for divorcing women is from the perspective “ what  do I need to be OK?”

I believe that most divorcing women do want to arrive at a settlement that works for both partners. What’s missing in most divorces processes is financial expertise.

How do you know if you need financial advice in your divorce?

If any one of the situations listed below is your case, you have good reason to get some expert financial advice

  • You don’t understand your situation
  • You have a good income and a busy schedule, so you would be better off if someone else did the paperwork
  • You want to be sure you’re doing the right thing and have the confidence of knowing it’s being done right
  • The division of marital assets and debts is unequal
  • Home or real estate  is being kept to sell later
  • Major asset is being divided or sold
  • One or both spouses are self-employed owners

With expert financial advice early in the divorce process, women can increase their chances for arriving at a settlement that works.