Sunday, June 13, 2021

Advisor Tightrope: Keeping Clients Post Divorce

Retaining not just one but both ex-spouses is possible, but you have to put your best foot forward.

Bonnie Sewell
Bonnie Sewell

If a client couple divorces, can you, the advisor, ethically keep a relationship with both parties? I think you can. A question is whether you want to.

Most of us prefer the company of one person in a couple to some degree more than the other person. From a business perspective, you probably prefer not to see half of the assets of the couple walk out the door. Depending on how effective you have been serving the needs of two people with dynamics that has them facing divorce, one party may be running for the doors — including yours.

I don’t envy the advisor with a client couple going through divorce. Especially if the advisor enjoys a warm relationship with both spouses. Even the best of professional relationships can be tested through the divorce process.

In a contentious divorce, an advisor’s records can be subpoenaed. In the rare truly amicable divorce, the advisor may still have one or both parties effectively asking them to choose between the spouses. Divorce fog is a real phenomenon usually seen at the beginning of the process that can have one or both of the clients acting out or making decisions differently than in the past.

If the divorce drags on too long, either of the parties may experience divorce fatigue. They are sick and tired of the process and just want it over. Advisors can experience divorce fatigue from a client’s divorce.

When people come to us for expert divorce financial planning, they are meeting us for the first time. Luckily, I have never had a client couple divorce in my wealth management client base. My work in divorce planning is designed to 1) keep the family financially stable post decree and 2) keep the woman as wealthy post decree as she was in her marriage. It remains true that many women suffer financially and dramatically so after divorce. It does not have to be this way. A woman with assets is an asset the world needs.

Be a Trusted Advisor

Remember George and Marianne, our fictional couple? In dividing a marital estate, we do not have to sink George financially to make sure Marianne gets her marital share of income, assets, and debts.

In fact, in a majority of the cases we work on, the higher earning spouse will be better off financially on the day of divorce with income and assets growing faster. This happens for reasons we know and understand. They were earning more before they split and that person will continue to receive compensation in forms that previously built their estate, such as stock options. In many cases they understood the assets better and negotiated wisely to end up with assets with higher growth potential. An example could be equities, rather than the home.

Let’s say your clients, George and Marianne trust you enough to ask you how they should proceed. They are also asking if you can help them. You can. Here are some suggestions to continue being their trusted advisor as they enter a process where trust landmines are everywhere.

To protect our clients and ourselves, we manage known conflicts of interest by articulating the conflicts in our contract and having clients initial them inside our Divorce Financial Planning Agreement. The client is affirming the joint hire and it indicates they should confirm with counsel before retaining us jointly. Further it confirms that both parties enjoy the same duties of care and communication. Should the clients decide to work with us post-decree, we would engage them as individual clients under our Wealth Management Agreement.

Other steps:

  • Remember that best practices include a clear communication protocol in place that includes replying to both parties.
  • Curate a list of high quality divorce professionals that you know well.
  • Wherever possible and under the clearly communicated privacy permissions you have with your clients, share documentation with the professionals on their team saving them money, time and hassles.

Divorce negotiations done well include deep documentation that stands up to scrutiny in division.

Build a Team

The first professional you want to identify is an excellent divorce financial planner who will guide your clients through the division and then shepherd them back to you when the negotiations conclude. You will want to confirm the divorce financial planner can handle whatever the estate holds, such as cryptocurrencies, extensive real estate holdings across multiple LLCs, private stock or commercial real estate.

There can be contagion in divorce. By handing the reins to the correct financial professional you can remain the trusted, impartial advisor who is facilitating this temporary transfer. This is often the largest financial transaction of their lives to this point. There are no do-overs that do not involve more litigation.

The family law attorney is the second professional you want in your list of referrals. In the U.S., no one is required to use an attorney to negotiate their divorce. We recommend everyone understand their legal rights. In fact, family law attorneys are best used for their legal strategies and often lack expertise or credentials in finance. George and Marianne should both avail themselves of their legal rights in the state where the divorce will happen.

I have had the privilege of working with outstanding ethical litigators and they are worth their weight in gold to the clients. We use them for their legal acumen and protect them when they are tempted to handle the finances. By default, this also protects your clients. George and Marianne are the only ones who have to live with the settlement after it is signed.

The third professional is the CPA or tax expert who routinely works with divorcing clients. The CPA does different work than the divorce financial planner. We put the entire picture together and the CPA usually adds the tax impact, comments on business accounting, and can speak to settlement language that directs the division of carryforward losses, refunds, etc. The CPAs we use can address the tax aspects on division of any asset we present. This is valuable to both your clients so no one is surprised by an unwelcome net transfer.

The fourth professional is a business attorney versed in mergers and acquisitions who can help with settlement language around the eventual sale of a family business.

The fifth professional is a business valuation expert. You may wish to add a forensic professional, although George and Marianne are negotiating transparently to give both parties the fastest path to resolution.

It Shouldn’t Be About the Lawyers

After more than three decades I am still surprised when an attorney asks a client to begin negotiations (between lawyers, mediators or collaboratively) before both parties have access to current, correct & complete information on the marital income sources, the assets and debt.

Another way to keep their trust during this very personal earthquake is to help them understand some realities about divorce in the U.S. Under every version including collaborative, the reflex is to keep it attorney centered. If I accomplish anything before I am done, it will be to switch that up to client-centered.

Divorce is big business. Your clients should step back and examine the process they are signing up for, which can include a clubhouse atmosphere. Most attorneys are naturally aligned with their colleagues who they socialize with and see in mediations or arbitrations, or as part of a collaborative team or in the courtroom

“If the settlement is perceived as fair by both parties, you will be a hero for having helped them while staying on the sidelines as they worked it out.”

Should you have a client couple come back to you post decree, use that opportunity to evaluate the work of the team you helped them use. If you find a professional underperformed, think seriously about replacing them in your list. In my experience, clients long remember those who helped them and those who did not during their time of need.

Life After Divorce

Let’s say George and Marianne have signed their settlement. They come back to you and ask if you can help them. If you have remained impartial throughout the process, you might simply treat them both as the individuals they are and invite them to re-sign as individuals whom you will work with on that basis going forward.

If both parties perceive the settlement as fair, you will be a hero for having helped them while staying on the sidelines as they worked it out. However, if George or Marianne perceive the settlement as having favored or slighted one party, you are not likely to keep the party who is unhappy.

Whomever you keep, you will want to bring their married records forward and then begin to keep new meticulous records on the individual. There is life after divorce. Helping both parties to the degree you can gives you the best chance of starting over with two battle-tested individuals who have the responsibility for happiness in their new lives. You will be well equipped to be their guide.

Bonnie A. Sewell, CFP®, CDFA™, AIF®, CEPA®, is the owner of American Capital Planning, LLC, in Leesburg, VA, a fee-only fiduciary wealth management firm with nationally recognized expertise in HNW divorce financial planning. Bonnie is the author of “Love-Jacked! Divorce Your Spouse, Not Your Dollars” and believes effective divorce financial planning is the best antidote to one of life’s most difficult transitions. She can be reached at bonnie@americancapitalplanning.com, 703.771.0905, ext. 2, @americancapplan (Twitter).

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