If "money in motion" just means retiring baby boomers to you, you could be missing a potentially lucrative niche: divorce financial planning. Tapping that market is complex and time consuming, but with 1.4 million divorces each year, there is a great deal of money changing hands, and most couples need help dividing it fairly and managing their finances after a divorce. A growing number of divorcees are already in advisors' target demographic: According to The Impact of Divorce on Retirement Decisions, a 2006 report by the Federal Trade Commission, the divorce rate among people over 50 increased 80% from 1980 to 2000.

How do you expand your practice to cover client divorces? Advisors who want to specialize in divorce financial planning can earn one of two main designations: the Certified Divorce Financial Planner (CDFP), offered by the College for Financial Planning in Greenwood, Colo.; and the Certified Divorce Financial Analyst (CDFA) designation through the Institute for Divorce Financial Analysts, in Southfield, Mich. "I chose [the CDFP] designation because I'm already affiliated with the College for Financial Planning," says Nicole Romito, an advisor at Financial Strategy Network for Raymond James in Chicago. "But the certified divorce financial analyst designation is basically the same thing." Romito says the course took her six months to complete and contained instruction on tax implications of asset-split strategies, how to distinguish between personal and marital property, and how to divvy up retirement savings fairly.

Harry Truman, an advisor with third-party marketer Investment Professionals at Eisenhower Bank in San Antonio, is a CDFA. As part of his duties, he gives nonpartisan advice to lawyers and couples about splitting up assets in a divorce. He also manages assets, but CDFA ethics require that when he's working as part of a team of lawyers, arbitrators and mediators, he has to remain impartial; he can't pitch his asset management services. "My role is to take stock of the assets, pose questions and ask about true value. For example, in a situation where stock is worth $20,000 and there is $20,000 in cash, bad news can take the value of that stock down to $10,000." If, hypothetically, each spouse gets one of these assets, "who comes out better?" he asks. The fair split would be to allocate half of the stock and half of the cash to each party. "I'm a neutral in the collaboration, and I tell each party that I'm not advocating for either [spouse]. I'm just trying to work out an equitable solution."

CDFAs and CDFPs are paid a fee for helping couples to distribute their assets fairly, and attorneys are often eager to get the input of a financial planning expert. Truman, one of the first San Antonio advisors to earn a CDFA, says two divorce lawyers contacted him to form a working group called the Collaboration of Professional Associates of San Antonio, which advocates for cooperative divorce with full disclosure, rather than confrontation. "We work together for an agreeable dissolution of marriages," he says. Since all the professionals involved know one another through the coalition, and because the team is working with both the husband and the wife at the same time, the professionals can cut through potential conflicts that could arise if the husband and wife were each using different law firms.

Splitting the 401(k)

Advisors play an important role in this process because they are experts in budgeting and cash flow. They also have more insight into where to look for assets, such as 401(k)s from past jobs that haven't been rolled into new plans. These need to be discovered before the divorce is final, because any money discovered afterward is off the table.

To make sure that as much wealth is uncovered during the divorce, specialized financial planners use qualified domestic relations orders (QDROs), documents which order qualified plan administrators to split up retirement accounts. Getting attorneys to file QDROs early in the divorce proceedings is vital, since a large chunk of the assets usually comes from the 401(k) of the wealthier spouse. Since QDROs are legal documents, advisors can help draft them, but they have to be completed by a legal expert. Either spouse is entitled to a substantial portion, often half, of what the other spouse paid into the plan while they were married. "Most of the time, the husband is the main breadwinner, who may have a huge 401(k) somewhere from an old job," says Dave Smith, an IPI advisor at Statewide Bank in Covington, La. "If an attorney misses that 401(k), that could have been a huge nest egg that should have been split." There's an added benefit of early disclosure for the advisor, as well: "Some of these 401(k)s are huge," says Smith. "If I can get half of that to invest, that's a nice little payday for me, too."

But lawyers often need to be pushed. "Attorneys help divide assets from a legal standpoint, but they're not so good at making sure that what's agreed on actually happens," says Kathleen Miller, a CDFA and principal at planning firm Miller Associates in Seattle and author of Fair Share Divorce for Women. "Attorneys often wait to file a QDRO, but the company has to approve it, so we have to bird-dog them." Filing a QDRO early is doubly important, since qualified plan sponsors often drag their heels, sometimes insisting that the filing is in their in-house template instead of a QDRO that an outside attorney has drafted. Due to often unnecessary complications, it can take as long as six months to get the plan sponsor to relinquish the assets-a long time for a divorcee who needs the money to live.

Once a plan sponsor clears the asset split, if the recipient who doesn't already own the 401(k), usually the wife, needs money, she can take her portion of a 401(k) as cash without having to pay the standard 10% penalty, even if she's not 591/2 years old. Most recent divorcees roll that money into an IRA, advisors say, but under Tax Code 72t2c, the recipient can liquidate any portion of that settlement to meet immediate expenses. Income taxes still apply, however.

Home Economics 

While a 401(k) is often a major part of the couple's assets, there are physical assets to consider too, particuarly the couple's home. Women tend to focus on keeping the house, which may have emotional value far outweighing its financial utility. "I never encourage a client to give up retirement money in exchange for a house, because they'll need liquid assets," says Barbara Shapiro, vice president of HMS Financial Group in Dedham, Mass., and regional director of the Institute for Divorce Financial Analysts. "The value of the house is set in stone, and it isn't liquid. At least in a worst-case scenario a client can take money out of a retirement account."

When an asset is such a flashpoint for a distraught divorcee, advisors should tread carefully in discussing the best course of action. "I don't tell them to sell it, but I point out that the house is a cash-flow issue, not an asset issue," says Eisenhower Bank's Truman. "Is the client's income enough to run the house? What are the property taxes? Can the client afford to live in it? In many instances, the client will decide to sell the house."

Sometimes it makes sense for one spouse to stay in the house for some time, especially where children are involved. Truman worked with a divorcing couple who had few assets apart from their house. Still, the mother wanted to stay there, since the house was in the child's school district; the father rented a place nearby. "They reached an agreement that they would keep the house until the child graduates from high school, at which point they'd sell it," Truman says. As long as both former spouses remain on the deed, keeping the house for awhile can be a smart tax move for everyone. Tax law permits both parties to take advantage of the $250,000 capital gains exclusion when the house is sold. If one party isn't on the title deed, he or she can be added at this point.

Another win-win comes from Social Security benefits. If the marriage has lasted 10 years or more, the poorer spouse is entitled to 50% of the wealthier spouse's Social Security without any losses to the latter. "The average length of marriage for people who divorce is 9.6 years, so if they just hang on for a few months, the wife can participate in the husband's Social Security benefit without impacting him," explains Romito of Raymond James. If a client has had several marriages, she can pick the largest benefit, Shapiro says.

Irrational Behavior

The real work starts when the assets are in flow. Working with divorcees takes longer than it does with married couples because of their heightened emotional state. "You have to be very patient," says Romito. "People are at their very worst at this time, especially with money. So be a good listener and remember you're likely working with the less-savvy spouse. And they're probably starting from square one." How much more time should an advisor expect to spend with a divorcee? "What would take one or two meetings with anybody else can take five or six with a divorcee," she says. "They don't hear you at first; they're too emotionally blocked."

Shapiro advises starting a short-term plan and working from there, asking first about the client's one-year outlook, and work up to their five-year vision, to help crystallize thoughts and explore the ramifications of the couple's decisions. "Most of the time, when they go through the process, even though they're emotional, they'll come to decisions that make sense," she says. "But they need someone to bounce ideas off, even if they sound crazy."

Unfortunately, advisors can't make people take the best course of action. Paul Aragano, an advisor for SMB Investment Professionals/IPI at St. Martin Bank and Trust in St. Martinsville, La., had a situation a few years ago that illustrates how irrational divorcees can be. In 2001, one of Aragano's clients, a 54-year-old homemaker, got divorced from an oil company executive, then 55, after 30 years of marriage. The executive husband had almost $2 million in his 401(k); in the settlement, the wife received $700,000. Aragano wanted her to roll it into an IRA, but instead she cashed out most of it and used it to try her hand at trading stocks online. Most advisors remember how tough 2002 was. Aragano's client lost most of her initial lump sum, which would have provided her a decent income. She ended up with just $60,000 in Aragano's care. "It was very disheartening to see someone set up for the rest of her life trying to be a day trader," he says. "But there was nothing I could do about it."

It's a struggle many advisors face, and sometimes tough love is the only solution. Truman mentions a female client who had come away from her divorce with a $500,000 settlement and who wanted to travel the world. "I pointed out, none too subtly, that if she went through with her plan, she'd be pushing a shopping cart around and living under a bridge within a few years," he says. "She changed her perspective. But some insist on going off to find themselves."

Sometimes it's possible for an advisor to appear to go along with a client's financially deluded whims, while steering that client toward a more prudent strategy. Shapiro had a divorcee who got a settlement of several million dollars. The client bought a large, expensive house in San Francisco, against Shapiro's advice, and also planned to buy a house in Africa, where she liked to travel. "It made no sense," Shapiro says. "But I managed to convince her to keep money earmarked for Africa in a money market fund for a while and said that in the meantime it would be better to rent. As time went on, she came to see the light. She's only receiving alimony for five years, and she needs her assets to support her after that."

That client is living on her alimony now, which isn't hard, since she's receiving $300,000 to $400,000 a year. But she's used to spending a lot of money, and that could lead to problems down the road. "It's really time for her to think about when her alimony stops," Shapiro says. "She's now coming to grips with the fact that it won't last forever. She's in her mid-fifties and she might need her money to last another 20 or 30 years."

Since this client isn't financially savvy and will need a steady income to support her lifestyle for the rest of her life, Shapiro has built her a portfolio using annuities with income-for-life benefits, mutual funds and some cash for liquidity. "Because she's getting such a large alimony, she needed guarantees so she could maintain her lifestyle, and I could only do that with variable annuities. The idea is for the annuities to kick in when the alimony stops," Shapiro says. "She's invested 60% in annuities and 40% outside of annuities." Shapiro is also trying to persuade the client to sell her house and rent instead, freeing up those assets for her multimillion-dollar retirement income portfolio. At this client's standard of living, it's possible that her retirement income portfolio could still run out if she makes too many lavish purchases.

Growing Your Business

Specializing in divorce financial planning can be rough going, but it can lead to a lucrative relationship. Around 95% of divorces are finalized with a CR2A, the binding contract entered at mediation. After that, says Shapiro, "if we've had a good working relationship, there's no reason why I shouldn't then become the client's financial planner." Miller broaches the subject by suggesting that a new divorcee go through two hours of post-divorce planning. "At that point, if there's potential for a solid relationship, that's when we talk."

Advisors specializing in divorce will also discover that their professional network of related professionals will grow organically. "As you build your practice, you'll find yourself networking with attorneys, therapists, accountants, mortgage lenders, and other departments within your bank," Romito notes.

Advisors can also look up nonprofits that help people who are going through a divorce and suggest seminar topics. Miller conducted a seminar called "Taking the Fear out of Divorce," with a therapist and an attorney, and another on protecting a business from death, disability and divorce. "So I came at it through the back door," she says. "Teaming up on seminars is a good way to get referrals, especially from attorneys you present with."

If you're not an expert in divorce, you can still benefit by getting in right when the divorce is finalized, Miller counsels. People need budgets, reviews of their taxes and insurance, and a complete overhaul of their investments, because they're reestablishing their retirement goals. Women, with whom advisors usually work, like to get referrals from friends. So a lot of business comes from word of mouth. "When a client mentions a friend's divorce, I'll throw out a question about whether the husband has a 401(k) at work," says Statewide Bank's Smith says. "I ask the client to tell the friend that she's entitled to a portion of those retirement assets paid in while they were married, and if she wants more information about it to call me." Women also take recommendations from their attorneys, Smith adds, so "reaching out to centers of influence should be part of every advisor's marketing program. You can do that through seminars about tax issues that attorneys don't know about."

Of course, divorce law is an exacting science. "It's a good area for advisors, but it's very technical, so you have to know what you're doing," Miller says. The work requires a steep learning curve and is not something you can do without studying the laws in your state. If an advisor isn't trained, it could hurt the client and perhaps create legal ramifications down the road.

Divorce financial planning is also a slow business to build, Shapiro explains. "Divorces can go on for years. But so long as you go in knowing that it's not a quick way to make a buck, it pays off in the long run." For that reason, Romito says, "I don't know if you could make divorce financial planning the sole focus of your practice, but it's a good piece to have as part of a practice." She adds that the benefits for an advisor are twofold: "The fruits of your labor are rewarding financially as well as emotionally."