Amicable division

(April 2005) After 18 years of marriage, Ken and Josie (all client names have been changed) decided to throw in the towel. Both accepted they’d be happier apart, so long as they were assured their 10-year-old daughter, Susan, would receive the support of both parents, and that they could agree to an equitable distribution of their assets. Their mediation lawyer recommended they obtain the services of financial divorce specialist Erika Penner.

Ken, age 49, was an emergency room physician who worked long hours. He was at the top of his career, earning a gross income of $292,000. In addition to the family’s house and other jointly owned assets, he’d built up an RRSP worth $430,000, and a $10,000 stock portfolio.

Josie, a 48-year-old registered nurse, had long been working part-time because she and Ken believed she should be home with Susan. Three years before the separation, Josie survived a bout with breast cancer and was now cancer free. Her most recent annual gross income was around $50,000. Given Ken’s schedule and Susan’s needs, there was little opportunity for Josie to work a lot of hours.

Her decreased earning power meant Josie had not been able to accumulate the same level of assets as her husband, and she would have significantly less earning power going forward. The couple decided to sell their family home (valued at $1.5 million with a mortgage of $740,000), and Josie wanted to have sufficient cash flow to pay a new mortgage on a home in the same area. She also wanted to start a home-based seniors’ care business with a colleague.

The lion’s share of their assets belonged to Ken. His earning ability had always been considerably greater than Josie’s, and he would continue to have a significantly greater ability to save. Josie, on the other hand, would be hampered by the servicing costs of a large mortgage and the startup costs for her proposed business.

Initially, Ken offered to equally split the fair market values of their home, his RRSP, CPP and the outstanding principal on the debts. He would pay spousal support of $5,000 per month for two years and child support of $996 per month until Susan’s 19th birthday. Josie would keep her nurse’s pension.

An analysis of the long-term outcome of the initial settlement proposal determined that, while fair in the short term, Ken would have a vastly superior ability to recover financially over the long-run. Penner also pointed out that, aside from the mortgage, the bulk of the couple’s personal debts were associated with Ken’s new car and entertainment costs related to his business.

That was unsatisfactory, so Penner revised her projections to advocate a different asset split, giving Ken all of the debt associated with his car and business. The new plan divided the proceeds on the house sale 70/30 in favour of Josie, and also split the RRSP 60/40 in her favour. In addition, Penner recommended extending the spousal support from two years to five years. Ken would continue to pay child support until Susan’s 19th birthday.

Ken was persuaded by Penner’s work and accepted Josie’s counter-proposal. Josie’s five-year spousal support now gave her the financial security needed to start a new business and afford a new mortgage. The receipt of 70% of the proceeds from the sale of her matrimonial residence let Josie make a substantial down payment on a home she loved, and she qualified for a mortgage through a broker sourced by Penner.

Josie’s receipt of 60% ($258,000) of Ken’s RRSP, along with an equal split of their CPP credits, better offset Josie’s small employment pension and her limited ability to save in future years.

Penner then referred Josie to an insurance specialist for the difficult task of researching what coverage might be available, considering her previous health problems. Unfortunately, she was deemed uninsurable for both disability and critical illness coverage. However, Penner advised she might be considered for life coverage, albeit with a rated premium, if she maintained a clean health record for at least another year. AE