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How to Prepare your Finances for the Three D’s – Death, Divorce and Disability

4 minute read

Published in The Globe and Mail, November 23, 2018 – by Sarah Bull, Partner & Portfolio Manager at KJ Harrison Investors

Each year, we head to the doctor for our annual check-up. That appointment is a chance to catch potential problems early, so you and your doctor can figure out how to ward them off and keep you healthier. Not enough of us give our finances as much attention as we give our health. Yet, your financial wellbeing requires the same regular attention, particularly when it comes to preparing for life’s detours. Let’s call them the three Ds – death, divorce and disability.

The majority of my clients are women with investable assets of $3-million or more. Typically, they’re well-educated professionals aged 50-plus. And many of them only come to see me after being struck by one of the three Ds. I hear the same things over and over again: I thought he was healthy, and then he was gone. Or, all of a sudden he said he wanted a divorce.

If you don’t think it will happen to you, here are some sobering statistics: Roughly 80 per cent of women will outlive their husbands, according to the U.S. Census Bureau. The divorce rate among Canadian adults in their late 50s as of 2020 – known as “silver divorce” – has hit 16.9 per cent according to Statistics Canada. As for the third D, disability, it gets far less attention but is no less worthy of consideration: Nearly half of all men and 45 per cent of women are expected to be diagnosed with cancer during their lifetime, seven per cent of us will develop dementia, and – well, you get the idea.

Any one of the three Ds can be devastating financially, which is why it’s so important to develop a plan now. Because it’s not a matter of if something is going to happen – it’s when.

While an increasing number of women are taking charge of managing their financial assets, many leave it to their spouse. They’ve never spoken to the family accountant or financial adviser. They don’t know where the wills and other vital documents are, or exactly what’s covered by their husband’s medical benefits and insurance. I had a recent client who was going through a divorce, and she was struggling to liquidate shares her husband owned in a private company. She hadn’t even known about the investments. If she’d sat down with her spouse before the divorce to get a clearer picture of their financial situation, she might not have found herself at such a stark disadvantage when things went bad.

So here’s what you need to ask yourself: What would happen if your spouse died, demanded a divorce, or was struck with a critical illness yesterday?

1. Start the conversation. I recommend sitting down for a frank financial discussion with your spouse sometime around your birthday (that way, you’ll remember to do it once a year). Sure, it might not sound like a great way to celebrate, but it will pay off down the road. Depending on your level of involvement in managing your household’s assets, this conversation might be as basic as figuring out exactly how much you and your partner bring in each year and where it goes.

2. Put a team in place to monitor your family’s financial health. Depending on the complexity of your finances, that might include an estate professional, a lawyer, an accountant, and a financial adviser who can look at your wealth plan as a whole and offer you advice, not just sell you investment products.

3. Sit down with your team (and, ideally, your spouse) to figure out where you’re at and where you need to be. How much do you bring in and spend each month? How would that change were you to be hit with one of the three Ds? If one of you were to die, would you have enough insurance to pay off your mortgage, or would you need to sell your home? Do you have long-term disability coverage, in case one of you is struck with a debilitating illness? What exactly do your benefits cover? In high-net-worth families, things can get extra complicated, with assets that might include real estate, stocks, corporations and foreign assets. How would these be split or liquidated in the event of divorce or sudden catastrophe? The ultimate goal is to ensure you’ll be able to maintain your current lifestyle, no matter what life throws at you.

4. Get organized (and stay that way). Gather all your documents and put them somewhere safe. Then create an inventory of what you have and keep it up to date. Your stash should include bank account information, insurance documents, wills, powers of attorney for both property and care, registered accounts, and a list of contacts that includes all the members for your financial team.

5. Update your plan regularly. Don’t just shove it in a drawer and dust it off in case of emergency. Revisit it every year to ensure your plan still passes the financial stress test. Has your employment situation changed? Have you bought or sold real estate or other assets? Do you need to change beneficiaries?

6. Rest easy. Now you know you have a handle on your financial situation, no matter what happens.

This isn’t an easy conversation to initiate. It’s bound to be awkward – no one wants to give voice to our deepest fears. But it’s better to have that talk before anything bad happens than after, when you might be struggling with emotions that impede your judgement. And ultimately, it will save you a ton of time and trouble later on.

Remember, financial education is financial independence, and financial independence is financial freedom.

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