Martina O’Mahony – Financial Expertise on Division of Assets (#4)

Jeannine Crofton

This is Family Law Matters, a podcast series that introduces you to mental health and legal professionals in the area of family law. We’ll be talking to experts who guide moms, dads and children along transitions of separation and divorce. My name is Jeannine Crofton, the principal at Resolvology Inc. I’m a Family Law Mediator in Alberta and a Psychologist in Alberta and Ontario. My hope is to provide information and a bit of optimism to listeners who are in the midst of restructuring their families. Before we begin, just a quick reminder that information heard on this podcast is not to be construed as psychological, financial or legal advice. Please consult a professional concerning your specific circumstances. In this fourth episode of Family Law Matters, we are speaking with Martina O’Mahony from Global Compass Consulting. Martina is a Certified Divorce Analyst. She assists her clients and their lawyers to understand the financial decisions made in separation and divorce. Martina brings 15 years in the financial services industry as a broker and financial planner to her work. See a complete bio for Martina on my website at resolvology.com.

 

Jeannine Crofton

Hi, Martina. Thank you so much for joining us.

 

Martina O’Mahony

Thank you, Jeannine. I’m excited to be here.

 

Jeannine Crofton

Martina, tell us a bit about what got you into the financial industry.

 

Martina O’Mahony

Well, from a young age, I was always intrigued by wealth, I guess, because I was a missionary child and pastor’s child that wealth intrigued me. I went into financial planning, got my CFP, which was 20 years ago, and it still is a very global destination for financial planning. I did work for financial institutions and private banking, the brokerage world. Most recently, I’m using all that experience to offer divorce planning.

 

Jeannine Crofton

How did you become interested in divorce planning?

 

Martina O’Mahony

I was going through my own divorce, after a marriage of 20 years, and I was even back in the brokerage world. Even so, it was uncharted waters. I didn’t really understand the lingo or just how lawyers were working, who to get advice from. To feel that I couldn’t even put the financial pieces together because of all the, I guess, the psychological, the emotional fog that I was in was challenging. I was trying to do all the juggling with the kids. I did not know the legal terms and the not knowing how you’re going to kind of come out of this. This experience motivated me to investigate the Certified Financial Divorce designation and also the Chartered Financial Divorce Specialist in Canada. It was perfect timing. I swore that when I finished some of the studies and the designations that I would use it to help others who are going through similar fog and to guide others to know they are going to be okay.

 

Jeannine Crofton

It’s so interesting for you to say that because often times I’ll hear clients say to me, well, I don’t think I can afford to leave my marriage, I’ve stayed a lot longer than I otherwise might have because I just don’t think I can afford to leave. To think that somebody who has such a strong foundation in finances is overwhelmed by the financial and emotional situation is telling. I think, heartening for other people who might be worried about that. Tell us what is the first step is for someone who is contemplating separation and divorce. What do you think the first step is for them?

 

Martina O’Mahony

Well, I think it would be similar step that I had. That’s Maslow’s basic hierarchy is where are you going to live? How are you going to make your bill payments, your food costs? Where are the kids going to be? All of those initial processes, which are actually not small things. And that’s why in finance, when people are going through a divorce, we are having them make these decisions right from the gate. We’re asking them to make some huge financial decisions that have potentially sometimes huge, significant impact on your finances depending on what you do. So, like you said, sometimes I’ve seen clients, too, where they’re not sure because we call them the non-CFO spouse, and it could be either party. I’ve seen both, and they haven’t been doing the finances. They don’t even know what bank accounts and credit cards they have and what the balances for that. They’re very vulnerable for not knowing. However, if they need to start, to step out and see. You don’t always have to go and buy another house or take the matrimonial house. I challenge people to look at rental properties. I took a girlfriend once when I was trying to decide what to do, and we went and looked at some rental properties.

 

Martina O’Mahony

That was huge for me because I had to really visualize myself. I’m a visual person. I had to visualize. Okay, where would we put the kid’s furniture? Where would the kids go to school? How to kind of facilitate all that and then the cost of it.

 

Jeannine Crofton

It sounds like the concrete tasks of moving forward, even exposing yourself a little bit to that and kind of information and just going out and doing some research before you make any big decisions is a helpful strategy.

 

Martina O’Mahony

Yeah. A lot of times I find that just going to the bank and see if you don’t know too much about your bank account, if you have a couple of bank accounts that you’re joint with, you could maybe then open up your own bank account, get your own credit card. If you do not have one in your sole name, that would be the first thing to do. Then, go to the house and rental market. A credit card is so huge to have it in your own name. And the thing to remember, too, is that sometimes when I find when trust is lost in a relationship, there’s so many uncertainties and unknowns. It’s essentially sometimes helpful to know that if you or your spouse go and get bank accounts, credit cards, investments that are within the marriage, if you haven’t separated yet, they will all be called later on into disclosure. So, you’re not hiding anything. Don’t think that you’re hiding anything or don’t try to hide anything in that way because potentially debt and investments could be still considered marital assets. But I would encourage a separate bank account and a separate credit card just so you have an identity to start to grow if you ever did separate.

 

Jeannine Crofton

You’re right, lots of people will say, well, I’ve raised the kids. My husband has taken care of the finances. We’ve had like a strong division of labor in that way in our marriage. That’s scary for lots of people because then they think, I don’t know the first thing about it. When you’re talking about just going into a bank or calling the bank and saying, what do I need to do to get a credit card? Then they’re going to walk you through that to some degree. They’re going to get you to give them all the information that they might need. Now how about for folks who have a more equal financial relationship?  For instance, they might have both mutually made decisions about finances, or maybe there’s an agreement in place, like a cohabitation agreement in place. How was that situation different than those who maybe are kind of just out of the know?

 

Martina O’Mahony

Well, I would suggest that those individuals potentially they have an upper hand because they know potentially what the balances are of investment. They know that they can each qualify for credit. They know what they could qualify potentially for a house, for a mortgage. That would be, I guess, ideal. What they sometimes don’t know is, well, if they had a cohabitation agreement, then that’s kind of easy for banks to go back and for advisors to go back and say, okay, you got married here, you’re separating here. But I also wonder when it’s coupled like that, that they sometimes might live separately and not want to deal with some of the finances because it’s neither here nor there. However, it could be really impactful as they continue on, if they avoid that conversation and then with child support and they probably wouldn’t be dealing with spousal support. It might help them come to the table, though, to make better decisions because there’s not an even balance of power there.

 

Jeannine Crofton

So specifically, a couple with a cohabitation agreement, that couple has entered into an agreement prior to either living together for a period of time or even once they’re married, they can have a cohabitation agreement, is that correct?

 

Martina O’Mahony

Yes.

 

Jeannine Crofton

And what is that cohabitation agreement offered them?

 

Martina O’Mahony

I kind of associate with being your business partners in some respects. Right. And you’re just setting out the terms and conditions of your business arrangement. And so, say one person does have a business and they both get married, and they value the business. They say the businesses has this many employees and we would say the business fair market value is a million dollars, that’s adding a value to it. So, if it was for the business, I’ve had different clients say, if we are married for ten years, I will give you 20% of the business. So instead of if they didn’t have a cohabitation agreement, it might be that the business, if it went from a million dollars to $10 million, that difference, the 9 million might be split in half. If they’re saying, okay, Joe brought the house into the marriage and it was valued at $500,000, and Sally kept a rental and it was valued at $300,000, then we’ve got lots of moving parts. All we need to know is the end date when they want to separate and then how to divide it. So at least that gives some parameters and some more digestible ways to part.

 

Jeannine Crofton

And obviously, all of these cohabitation agreements are put together by lawyers, generally speaking, or even if they’re put together by financial experts, people will go to a lawyer to make sure it’s in their best interests before they sign them. But we’ve just talked about sort of the person who doesn’t know anything about their finances, or they don’t have any specific knowledge about their finances versus the people who have been really thoughtful and forward thinking about their finances. And so, most of the folks that come about a separation don’t ever anticipate that they’re going to be separated at some point. I think most people enter into marriage or into long term committed relationships feeling like this is going to be for a really long time. Name some of the other financial decisions that they need to make such as how they separate the pension.

 

Martina O’Mahony

Defined benefit pension plans are from lucrative pension that we used to have a lot of. Let’s say Joe gets $50,000 for the rest of his life when he reaches 65. That’s a lucrative benefit plan, especially with our CPT being sold. And to divide, that sometimes is tricky. It’s one of those things that you cannot go back. You have one shot, and you have to make a decision if you sometimes want to take half of that. So, you’d have $25,000 for the rest of your life, or what we call a commuted value, which could be say $400,000 right now. Today you take that lump sum, they’ll have restrictions on it, but at least you can have that as part of the narrow settlement. So those are two really huge. And if one spouse is not a financial savvy person, that’s really overwhelming to talk about and to actually have to make that decision. And there’s tax consequences that you have to think about for registered assets, pension versus sometimes I find that one spouse that just maybe doesn’t want to know too much about the finances or just is overwhelmed and they just say, okay, just give me my house and you can have everything else.

 

Martina O’Mahony

That could be the worst possible decision. The other person could be walking away with a fortune.  The house if it’s maybe not all paid off, or if there’s renovations that you would need right away, property tax goes up and find out that that person can’t even afford to keep the monthly costs going. Also, investment. If one person has never really talked about stocks or bonds or GIC’s, that can be an overwhelming process too. And maybe it’s a million dollars, maybe it’s $300,000. Either way, it could be tricky if they haven’t been the one that’s been talking about investing and helping with that.

 

Jeannine Crofton

So, the other financial decisions include pensions, they include investments. Tell us a bit about child support. How is child support calculated?

 

Martina O’Mahony

I will come in as a financial expert into mediation, usually they’ve already talked about the parenting plan, where the kids are going to live, how they’re shared parenting, is it equal or is it 60% at one house and 40% of the other? Those are important considerations before we talk about the child support. However, if you start talking about the financial contributions of child support prior to thinking about the child and what may be the best interest in that child, people can kind of get thwarted to say, okay, if I don’t take 50 50, then that means I’m going to have to pay you more in child support or in all the other costs. So that can be a heated debate, but we must keep bringing it back to the kids.

 

What I like about the current government legislation is it’s really an offset? So, if there is just shared parenting and it’s basically 50 50 just or 60%, you can just say, okay, I make 100,000. So and so makes 150,000.

 

Martina O’Mahony

And there’s an exact amount that can stipulate what that child should have for their needs. If the parent earning $100,000 has to pay, say $1,000 a month and the parent earning $150,000.00 has to pay $1,400, then they can offset it. The one parent would just have to pay the difference. So that would be $400 to the other spouse.

 

 The mix is also impactful in the other costs. So that the things that we sometimes forget about and where people can be divisive with their parenting post divorce is say, you had Johnny in violin lessons and skiing and hockey and expensive camps is that realistic to still continue for the child, or do you have to drop some of those activities and of those activities, is it a 50 50 split or is it prorated to what the parents are paying in child support? For example, if one parent is paying 70% and the other parent is paying 30%, then typically we would keep that ratio for their extra or extraordinary costs. And amicably, when parents are doing a separation agreement, there can be lots of wiggle room for that. And tax wise, maybe they get creative in some areas like that.

 

Martina O’Mahony

There can be a greater tax advantage with spousal support.  Child support income is not taxable and the person paying child support income doesn’t get a tax benefit.

 

Jeannine Crofton

In an ideal world, what we would see is that parents would look at what is in the best interests of the child. They would determine, okay, so where should this child be living and how should we be sharing our parenting time and come up with that scenario first. Because, of course, we want to make sure that the children’s needs are met prior to the parental financial needs. So that’s, I think, the first consideration. And then if there’s anything where there’s either 50 50 split or anything less, somewhere between 40% and 60%, then parents are considered to be joint parents financially, and then that’s where the offset can take place. But if one parent has primary care, they’ve got over that 60% threshold, then the other parent would pay them a different amount. That would likely not include an offset. And it’s also complex.

 

Martina O’Mahony

Right.

 

Jeannine Crofton

Because as you’re saying, there’s different tax implications. As you’ve aptly stated, you’re kind of thrown into this sometimes not knowing very much about the legal or tax circumstances. And whatever you decide can have long lasting impacts for you and the children. Martina, I’ve been mediating for 25 years. That scenario about one parent wanting to just keep the family home, that is just so common, that stability and that sense of predictability is really important to many separating parents. They will say, I’m just going to keep the family home and you can take whatever else. That doesn’t really necessarily work out for folks in the long term. I mean, it can be a really good decision depending on what the priority is. It can foster a sense of security to keep the family home. I’ve got an asset. But as you stated, getting bought out from a pension that exists or portion of the family business, those things or some of the investments, those might actually hold somebody in better financial standing than if they had done nothing beyond the house. So how do you address people when they come to you, and they have fairly rigid ideas about what should happen either as it relates to child support or as it relates to dividing the assets and debts.

 

Martina O’Mahony

Right. So, when I see clients, we have this well, even when you talk of financial disclosure, it’s really like basically your bank account, your debt, credit, investments, pension, real estate, put it on paper, it’s really quite simple. And it could be about two, three pages at the most. If you simplify it, log everything.

 

If someone is holding to their position, we can see it on paper. And I often tell clients, like anyone, you could apply, you could qualify for a mortgage. If the separation agreement says you’re going to get this asset, this asset or this monthly income. And if you hold to that position and you don’t want to look at anything else, then you might be awarded the house. It might be a bit of a financial burden later on. Or what if you try to just envision something different? Because the kids, we always say, oh, we want the family home, but the kids actually, they just want their parents to be okay. They don’t want their parents to be stressed, to go to work on a single income just to keep the house. They want their parents to be okay. If you think in terms of, again, the kids, but get counseling on that and get counseling on your position.

 

Martina O’Mahony

If there’s ever a time where someone wants to make the other person pay, that can make this whole division of assets tricky. Holding firm to I want half of this money from the pension can be a tricky conversation. It could be different if it could be creative, a different way; a give and take. So, it’s deciding. I guess what’s really important is when people are coming to negotiations and mediation or they’re talking to the lawyers, have a list, whether this is amicable or not, have a list of what you want and maybe a subcategory of why you want it so that you can go through kind of the logistics with, okay, what’s the legal ruling on what your position would be, what’s the financial position on what that would be, and what is the emotional position? Because sometimes you’re holding on to it because of an emotional position when it doesn’t work financially, and it doesn’t work legally. So that’s maybe where you need to get the help. On the other side.

 

Jeannine Crofton

Right. During this podcast series, there’s been a number of guests who have said, look, if you are going through separation and divorce, it’s very helpful to go and talk to a therapist, a psychologist, even for a session or two, because that person can help you manage some of the emotional issues that are factoring into some of these big decisions. And when we’re problem solving, we want to be looking at the facts, and we want to be thinking about the outcomes based on the decision. And when that’s clouded by emotion, we may not make our best decision. So, I think that’s what I hear you saying is that if people come to the table and they can say what they want, why they want it, what are the emotional reasons? What are the financial reasons? What do you think the benefits are to the children? If this decision is made, what are the shortcomings of this decision? Then those who are trying to help you will kind of be thinking in the back of their minds about, okay, so they could accomplish this objective in a different way, which actually benefits both parties better. And so that both parties get more of the puzzle, or the piece of the pie rather than they might have had they stuck to their initial sort of thought about how things should be divided.

 

Martina O’Mahony

Right.

 

Jeannine Crofton

So spousal support, tell us a bit about how special support works.

 

Martina O’Mahony

Well, spousal support. And it’s fascinating to see the work that I’m doing in the US. It gives us Canadians maybe a little bit more appreciation for what we do have. And this is where when you’re in the situation and you’re looking for ideas, I’ve seen both sides. I’ve seen, like you said, someone’s in a long-term marriage and they’re unsure of what they would get, and they’re scared. And so, they think it’s going to be nothing, and they think they’re going to be on the street, and they have that’s a fear. And then I’ve seen the other side where some folks that maybe was staying home seems very entitled, and I’m going to take half of their income for the rest of my life. And so, to know that it’s not either of those spectrums and it’s something very much in between. And in the US, it’s called recovery maintenance, because what it is, it’s to increase your skill set, maybe education, maybe it’s two years in school and it’s to get you to be an income generating, self-sufficient party rather than being on spousal support for the rest of your life.

 

Martina O’Mahony

That is under a certain age, if you’re over 60, there’s limited options. Right. And your workforce experience might be limited, and you might not be able to regain that ground. But if you’re a 30-year-old, 35-year-old, you can there’s ways that you can gain education. You can get a good paying job when the kids are gone. There may be different options for you. So, it’s usually based on your length of the marriage, the income differential, the ability now for that person to pay. If the difference was, say, someone staying at home and someone working. So, you may coordinate payments to allow the other to increase the skill set to become more financially stable. If the payments are paid on a periodic basis, a $1,000 a month, then that can be used as a tax deduction. The main income earner, they can use that as a deduction, and the lower income spouse may claim that as income. Now, that’s great news. If that spouse didn’t have really an income before you really want to state it like that, because then they can potentially qualify for a loan or a mortgage: not all of the income, but there’s a portion of that that they could use.

 

Martina O’Mahony

If someone chooses a lump sum over monthly spousal support, then there is no real tax benefit to that. There’s equity in the house in place of spousal support, I’m going to give you that. That’s a choice. In that case you still do your due diligence and do your math and you’d say, okay, does that really equal what I would be getting for maybe 20 years? There are math calculations to do that to make sure that that’s in your best interest.

 

I’m getting back to we were saying that the people who are afraid to leave and it seems so scary to be on your own and to be accountable and independent. However, I’ve seen the most incredible stories and even well, even for myself, I had to pick up my career quickly at age 40 and kind of make up for ten years that I was at home with the kids. One lady went back to be a lawyer in her 40s. But even at 55, I remember one woman who pursued an interest in horticulture, and she would just light up a being out of the former circumstances that she was in.

 

Martina O’Mahony

I think that added ten years to her and to be able to explore and look at interests and hobbies and jobs. And it wasn’t so scary for her. People are really resilient and it’s not all bad news and you can really use a situation where you receive spousal support.

 

Jeannine Crofton

Then what we’re really looking at is needs, means and circumstances of the parties. And if somebody has been staying at home for a period of time and they are unemployable, sometimes that spousal support helps bridge the gap so that they can get back into the workforce in some circumstances. That’s not always an option depending on the length of the marriage, perhaps, but this is all information that a lawyer would be able to very clearly lay out for folks. When it comes to the financial piece, again, I hear you talking about being creative and saying, well, what is going to be in the best interest of both of the parties. And sometimes what’s good for one is a benefit to the other. So, somebody who’s got a strong background in finance and finance coaching like you do can sit down with people and identify some of the choices that makes most sense for both spouses.

 

Martina O’Mahony

Yes, exactly. Even for someone like myself. For CBFA, we charge by the hour. I’ve had clients say in an hour they’ve learned more than they have with their lawyer for six months. Right. Because we can just shoot from the hip or just talking and discussing a few strategies that they can then take to their professionals. So, a few hours could save you thousands and something to look at. Even paying the accountant. I hate sometimes paying my accountant, but every time I come away knowing that if I hadn’t taken that advice, it would have cost me a whole lot more. So, while it’s sometimes hard to stomach the cost there can be real benefits. That’s where I really feel the collaboration between the lawyers and other professionals is key. Because you don’t want to have some of these lengthy financial conversations with a lawyer that’s charging $600 an hour. That lawyer should probably best be used for the discussion that has to come intermittently or at the end during the document preparation. And so, if you can use a mediator or a financial professional to solve some of the other questions that can be dealt with on an hourly basis or a few hours, that might help save you some money.

 

Jeannine Crofton

The last question today is if you were to offer some advice for somebody who’s beginning the separation process, what would you say to them?

 

Martina O’Mahony

Just kind of reiterate what we’ve talked about. I would challenge them to seek professional advice on every question. So, whether it’s real estate, there’s even sometimes special real estate professionals, mortgage professionals that will help people going through divorce, because you don’t necessarily want a realtor who just wants to get your business and up some of the prices. You want someone to say, okay, if I just do a fire sale of my house today, what would that number be? You want someone in your court that’s going to recognize that you have a bit of a struggle right now and that they’ll be sensitive to that. To be sensitive that we are asking clients who are struggling in this fog of separation and divorce, and we’re asking them to make huge financial decisions. So have a team of people to work with, and especially if the team can kind of reiterate what each other is saying that can give you confidence. When I work with a financial advisor, investment advisor, and they say, oh, yeah, we can use these funds for this because of the tax and then that’s confirmed with an accountant and the lawyer can write it up and it all looks good, that’s beautiful.

 

Martina O’Mahony

It’s knowing that you’ve done the best that you can do with your circumstances because divorce is not fair and it’s usually going to cost you something at some point. So how to minimize that and how to minimize the noise of you taking a position? I know it’s hard to rationalize. I can look back on myself and think, yeah, I should have been more rational at that point. Using a therapist along the way. I mean, that was huge to me, and I think that professional has to be part of the team as well.

 

Jeannine Crofton

Thank you for sharing that with us because we know that for a lot of people going through separation and divorce, they don’t necessarily end up having a more lucrative lifestyle. In fact, oftentimes both parties end up with living with less. So, the advice that you’ve given us and the information you’ve shared, it’s all very valuable, so thank you.

 

Martina O’Mahony

Thank you very much, Jeannine.

 

Jeannine Crofton

We establish our financial identity Often very early in life, and when we become a couple, we seek to build financial security. Separating our financial life is one of the most challenging issues to resolve during divorce. For many people, money equates either to freedom or personal power and we know each family has less of it upon a separation or divorce. During the interview, Martina walked us through a number of financial issues including pensions, child and spousal support, cohabitation agreements, and the division of family assets. She recommends people coordinate law, tax and accounting experts. She also shared her personal circumstances and her understanding about how the emotional impact of separation can cloud our understanding of financial matters. As a quick note, please do not conclude the information shared by Martina as personal financial advice. Please find a professional who can provide you with tailored advice for your specific circumstances. That’s it for this edition of Family Law Matters. I’m Jeannine Crofton. Thanks for listening. Connect with us by emailing Family Law Matters at info@resolvology.com. Ask us your questions about family law issues and look for our blog articles to address your pressing questions. Check out the other work we do at resolvology.com. You can follow us on Twitter at R-E-S-O-L-V-O-L-O-G-Y_YYC.

 

Thanks to Meg Wilcox for her work on the podcast series. Thanks as well to Martina O’Mahony for her thoughts on resolving your family law issues. Be sure to subscribe to the rest of the series where you gain insights from other professionals who assist families going through separation and divorce in Alberta.