By Kathryn Jankowski 
Some judges ask collaboratively trained professionals to attempt to bring the ‘essence’ of the collaborative divorce to their litigious divorce clients in an effort to solve differences in a more peaceful manner and keep divorce proceedings out of court. One might think that these very same judges are attempting to put themselves out of business, however, there are enough divorce cases to keep them busy. A sad and sobering thought!
It was because of the judges ‘call to action’ that prompted me to have a collaborative slant on a discussion I recently had with a client who was going through the worst of a high conflict, litigious case. Sometimes divorcees can get caught up in fighting for things that maybe they shouldn’t. Let’s look at this example, below.
Husband, let’s call him Joe, will do anything to upset wife, let’s call her Jane. Joe knows Jane so well (they were married, right?) that he knows exactly what triggers her and he uses it. Jane has a pension plan from her place of employment and Joe has a right to be a joint beneficiary of that pension until he signs off on his interest in it. He is dangling this over Jane’s head in his effort to constantly thwart her in every effort to move forward.
In my conversation with Jane I asked her why the value of that pension was so important to her. She told me that she wanted to help support her children if anything were to happen to her (she has two children, eight and ten). As her pension is a defined contribution pension she is very concerned that if something happened to her that her children would have those funds to help meet their needs, especially since they are still dependent. It seemed to me that Joe was using his spousal rights to the pension to empower himself in the divorce proceedings. By neither agreeing to sign the right to give up his interest or to negotiate a separation agreement Joe has Jane right where he wants her. (I won’t get into the fact that Joe does have a valid interest in the pension asset which needs to be negotiated.)
Stepping back from the situation I reminded Jane that if her children did become the beneficiaries of her pension then the assets will become deregistered, at death, and included as income in her final tax return. Depending on what else was going on in the form of income, in that year, her asset will be diminished by her marginal tax rate. So then, if her pension was worth $100,000 her income would be $100,000 in her final tax filing (along with any additional taxable income). The kids would get the $100,000 and Jane’s estate (the residue that is also left to the kids) would pay the tax. So, in essence, the kids would be left with $56,590 (again, simple math and not taking anything else into consideration and using the highest marginal tax rate in Ontario). I asked Jane if she could afford to purchase a life insurance policy for $57,000, with her kids as beneficiaries so that if something did happen to her that she would protect the value of her pension to help meet the needs of her children? I also asked Jane if she was insurable. The insurance proceeds are non-taxable (as they were purchased with after-tax cash). I mean, if it was truly her goal to ensure her kids were OK this solution seemed like a win-win. Regardless of the asset in question, I suggested Jane do some number crunching to calculate the needs of her children going forward, if she wasn’t around, rather than just assuming the pension amount would suffice. Guardians would have to be paid and then, of course, there is the post-secondary education needs to consider as well. By purchasing an insurance policy she is taking away the empowerment of a high conflict ex-spouse. It no longer mattered what Joe did or didn’t do with regard to the pension issue. Jane’s concerns were addressed by another means and Joe no longer had pension power!
She loved the idea.
Sometimes it helps to not get hung up on particulars of each asset but rather what that asset truly means to you. In a litigious setting the power struggle seemed to be more of the issue than the value of the pension. Taking a collaborative approach and seeing another potential solution allowed Jane to move on with less resentment and still have her needs fulfilled. Hopefully, this post will reach someone who is contemplating divorce to consider the collaborative approach rather than getting hung up on the throngs of battle in a litigious setting by realizing needs can be met and voices can be heard in a less harmful manner.
Kathryn Jankowski, B.A., CFP, FDS, FCSI
Vice President, Financial Divorce Specialist
T.E. Wealth
kjankowski@tewealth.com
416-640-8591