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The Roles of the Financial Professional in Divorce

by Edward M. Goldberg

Purpose of this article:

Currently, there is a strong movement towards collaboration and mediation in divorce and away from the traditional or adversarial format.  Further, the trend is to incorporate into the process allied professionals, such as accountants, financial planners and mental health professionals.  This interdisciplinary approach may have several advantages for the couple facing divorce, and while the use of allied professionals intuitively seems to be an even more expensive proposition, the opposite is probably true.  By judiciously using an interdisciplinary approach, it is likely to actually reduce the costs of divorce if we can assume that emotional matters are perhaps best left to mental health professionals and  that financial professionals may have an advantage in explaining some of the financial ramifications of divorce to the parties involved.

The purpose of this article is to explore the various ways a financial professional can be used in the divorce process.

Role #1: The Forensic

The Forensic has long been used in the divorce process, but typically in a very limited role and most often in contested divorce cases in which there is disagreement as to the validity of a tax return, hidden assets, deception, business valuations or other valuations of difficult to value assets.

Role #2: The Financial Neutral

As a consultant a financial professional could be used as a neutral or not.  As a consultant the professional is typically acting in a very limited capacity and is not necessarily an integral part of the entire process, as would be the case with the interdisciplinary collaborative format.  As a consultant the financial can be called on in any type of divorce process and for any kind of task.  In more than one instance I was called to work with the parties because the process had gotten “stuck.”  This happens when upon splitting up assets and projecting one’s own set of living expenses, each party sees themselves facing a cash flow deficit.  Neither party can agree on even the fairest and most equitable arrangement simply because the outlook is untenable.  While the financial professional cannot create capital, he/she does have the advantage of impartiality in this example.  Even in the most collegial of divorces, attorneys are advocates and as such may have difficulty in getting the parties to agree to a solution that, while fair, simply does not work in reality.  The financial professional cannot necessarily fix that, but he/she may be able to facilitate an objective way to look at the situation that the parties can ultimately agree to.  The consultant can be used to calculate present values, give opinions on certain types of assets, create a financial condition model, do a pre-tax/post-tax scenario, or any one of a number of different tasks, but typically in a very limited role.

Role #3: Consultant

As a consultant a financial professional could be used as a neutral or not.  As a consultant the professional is typically acting in a very limited capacity and is not necessarily an integral part of the entire process, as would be the case with the interdisciplinary collaborative format.  As a consultant the financial can be called on in any type of divorce process and for any kind of task.  In more than one instance I was called to work with the parties because the process had gotten “stuck.”  This happens when upon splitting up assets and projecting one’s own set of living expenses, each party sees themselves facing a cash flow deficit.  Neither party can agree on even the fairest and most equitable arrangement simply because the outlook is untenable.  While the financial professional cannot create capital, he/she does have the advantage of impartiality in this example.  Even in the most collegial of divorces, attorneys are advocates and as such may have difficulty in getting the parties to agree to a solution that, while fair, simply does not work in reality.  The financial professional cannot necessarily fix that, but he/she may be able to facilitate an objective way to look at the situation that the parties can ultimately agree to.  The consultant can be used to calculate present values, give opinions on certain types of assets, create a financial condition model, do a pre-tax/post-tax scenario, or any one of a number of different tasks, but typically in a very limited role.

Role #4: Advisor

Simply, an advisor works with clients for the long term.  Reasons one might choose to retain a financial professional as an advisor during the divorce process are:  1)  To “level the playing field” when one of the parties has less financial acumen than the other;  2)  To help the client fully understand the financial ramifications of the impending life course change;  3)  To work with the client on an ongoing basis after the divorce since that client is certainly going to need help managing his/her finances going forward.  One argument against using a financial advisor during the divorce process is that – so I have heard said – advisors tend to advocate for their clients.  This argument merely goes to support the proposition that IF an advisor is to be used, then it should be one who is adequately trained in divorce, i.e., a Certified Divorce Financial Analyst (CDFA™), and one who also has collaboration and even preferably mediation training as well.  Such individuals understand that they are indeed NOT advocates.  By definition, only lawyers are advocates.  As an advisor, a qualified financial professional can not only help the client to fully understand the financial ramifications of the situation, but can also help the attorney to understand such ramifications on a long term basis.  My process when working as an advisor to my client is a progression:  Step One, The Divorce – understanding the financial ramifications of anything that is proposed.  Step Two – The Client’s Individual Financial Plan.  The Agreement forms the basis of the client’s financial plan going forward.  Step Three – Transfers and Accounts.  Also according to the Agreement, accounts need to be established in the client’s sole name and assets transferred to the appropriate qualified and non-qualified accounts.  Step Four – Deployment of Assets (Asset Allocation).  These assets are allocated according to the cash flow demands and investment objectives as outlined in the client’s financial plan, which by the way, also includes recommendations regarding new wills, trusts, etc.  Step Five – Ongoing Monitoring of the Plan.   Financial professionals who have the credentials, training and experience in divorce work are uniquely suited to help a client – particularly one who does not have a good background in managing family finances – to navigate through not only the financial aspects of divorce, but also prepare for financial life as a single person subsequent to the divorce.

It is encouraging to see so many attorneys opting for mediation and collaboration as a better way to help their clients get through this most difficult life course change event.  Including highly qualified allied professionals in the divorce process is yet another step in the evolutionary process of making divorces better – less costly, less destructive.  Best utilization of these other professionals further contributes to the optimization of the goal of having more client friendly and best outcome divorces.

Edward M. Goldberg is a CFP, ChFC and CDFA practicing in Windsor.

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