Divorce is challenging for everyone involved, including financial advisors. After years of helping couples who are clients work toward achieving their financial goals, seeing those plans become derailed by divorce can be upsetting.
Says Linda Cartier, president of both the Academy of Financial Divorce Specialists (AFDS) and Financial Decisions Inc. in Sudbury, Ont.: “People in the midst of a divorce are often irrational and difficult to work with. If you decide you don’t want to do this, have a resource team in place that you can refer the couple to, including a psychologist or mental health professional to help them deal with their feelings.”
Here are some tips to help you if you do decide you want to work with your divorcing clients:
– Make a choice
A separation or divorce forces you to decide how – or if – you will represent the two people, says Kathleen Burns Kingsbury, principal of KBK Wealth Connection in Boston.
“Do you want to work with one partner; create a firewall between them and represent both; or neither of them?” she asks. “Consider whether you’re too invested in [the divorcing clients] as a couple to work with one of them alone. And if you decide to work with one and refer the other out, make sure it’s OK with both [divorcing] partners – and get it in writing.”
Anna-Marie Rasmussen, a chartered financial divorce specialist and senior executive financial consultant with Investors Group Inc. in Kelowna, B.C., says the best practice at her firm is to find another advisor for one of the divorcing spouses. Keep the one you relate to best and refer the other to someone in your practice.
– Act as a resource
It’s not uncommon for one partner in a couple to have little or no understanding of how finances work, says Rasmussen.
“Some people have never had to budget, save or manage their money because their partner took care of it,” she says. “If someone feels overwhelmed by suddenly having to handle their finances alone, you can help him or her to take charge by providing access to educational tools, such as online seminars.”
Useful reference books include Surviving Your Divorce: A Guide to Canadian Family Law, by Michael Cochrane; and Divorce: A Canadian Woman’s Guide, by Gail Vaz-Oxlade.
You also can help your client or clients organize their paperwork in preparation for seeing a divorce lawyer. Include a statement of your clients’ income from all sources, insurance policies, investment statements, debts, pension plans, a budget of regular expenses and a list of special expenses, such as home repairs, education and health.
Cartier recommends that you get to know some good family-law lawyers in your community. “Make sure they have the right qualifications,” she says, “and personally interview them before recommending them.”
– Never give legal advice
One of the pitfalls financial advisors face in the context of a client divorce is negotiating the shift from giving advice to providing information.
“There’s a danger that a financial expert could be seen as providing a legal opinion without having the proper training,” Cartier says. “Understanding what the [financial] planner can and cannot do is a key part of the AFDS training.”
Although Cartier isn’t aware of any legal action that has arisen from a Canadian advisor overstepping his or her bounds, she has seen advisors lose divorcing clients because the advisor promised things he or she couldn’t deliver.
– Watch your recommendations
Be aware that divorce creates a potentially volatile situation with respect to managing your clients’ money, Cartier says.
“The date of separation is used for asset valuation and the process can take six months to a year to complete,” she says. “At the end of that time, the assets must have retained their value in almost all cases. So, be careful in terms of spending money or reinvesting in something that might be risky.”
Avoid providing recommendations that could be perceived as being designed to hide money or reduce the amount of the assets that must be divided.
Changing the beneficiary of an insurance policy is another potential pitfall to avoid. “It’s best to let the situation evolve before making any important changes,” Cartier says.
– Encourage mediation
Explain the possible ramifications of prolonged divorce proceedings to your clients and encourage them to consider the alternatives, says Rasmussen, who works with Kelowna’s Collaborative Law Group.
Alternatives include mediation, arbitration and collaboration, in which the parties work together to reach an acceptable resolution.
“The cost of mediation is about three-quarters that of a court case,” Rasmussen says. “And it results in a quicker resolution, improved relationships and less bitterness.”
Collaboration uses a team approach. Each of the participants hires a lawyer and all parties attend four-way meetings.
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