So at least half of your clients have divorced or will do so. Divorce can have a major impact on estate planning. What can you do to help clients through the divorce meat-grinder, get them back on their feet financially and safeguard their estates from the ravages of divorce? Plenty.

Along the way, an obstacle you will have to overcome is getting clients who are burned out from the divorce process to focus on planning their financial future. So it will take a bit of diligence on your part to guide clients in the post-divorce process. Yet though this will take some of your time and effort, it can create substantial goodwill with clients.

With a myriad personal and financial variables to address, one that rarely makes it to the table is asset allocation. Commonly, post-divorce clients have portfolios that are widely skewed. The ex may have gotten the house and bonds, and your client, all the equities.

Given the tremendous volatility of the markets right now, post-divorce clients need to quickly establish new asset allocation goals and reallocate. The typical post-divorce client needs a greater allocation weight of cash to cover common post-divorce expenses. And the client's retirement and other plans will almost assuredly need substantial revisions.

Procrastination

Most post-divorce clients do not get around to planning-related issues for many months or even years, taking time to recover emotionally first. Thus, you will need to educate these clients about the importance of taking care of this business now, lest their financial recuperation take longer than their emotional recovery.

Most divorcing clients or their attorneys focus on the tax attributes of assets when endeavoring to divvy up marital assets. But asset protection is a facet of this analysis that is often overlooked.

Example: You manage a pension and IRA account for your client. She is a physician and is quite nervous about malpractice claims. Her ex-husband-to-be is a college professor. Her divorce is stuck in the usual quicksand over valuing marital assets.

Discuss with her the idea of giving up some of the disputed claims on the marital residence in exchange for keeping more of her retirement assets. Even if the numbers are not in her favor, it may be a more beneficial result than continuing to wrangle over these values.

Her IRA and other retirement assets afford a strong measure of protection from malpractice and other claims. For example, in the event of bankruptcy, her retirement plan should be protected entirely and her IRA, up to $1 million.

The client's interest in the marital residence may have had protection before the divorce because it was owned in tenants by its entirety, a special form of joint ownership between husband and wife. The divorce will destroy this benefit.

Once the divorce is consummated, you'll have to help clients address asset protection planning regarding whatever assets he or she has left. This is often challenging. The client may need to consider a family limited partnership or limited liability company in conjunction with adult children (possibly risky right after a divorce) or other relatives, domestic asset protection trusts (e.g., in Delaware), permanent life insurance policies in irrevocable life insurance trusts or 529 plans for children.

Each of these must be evaluated in light of any requirements of the divorce agreement affecting insurance and saving for children.

Beneficiaries

Divorcing clients often have substantial retirement accounts and other assets governed by beneficiary designations. While you know these must be formally changed for every account (including IRAs, pensions, insurance plans and brokerage accounts set up with beneficiary designations) too many clients don't follow through. The long trail of lawsuits over incorrect beneficiary designations reflects clients' failure to heed this critical advice.

When meeting with clients, drive home the point that the mere recitation of how beneficiary designations are resolved in a property settlement agreement is not necessarily sufficient. Change forms should be sent certified mail (return receipt requested) in light of the common occurrence of these documents being lost, particularly when institutions go through mergers.

Seeking Specificity

When clients divorce, there's a good chance that the critical area of insurance protections may be overlooked. All too often, your clients' ex-spouses may have the flexibility to undermine the intent of commitments to maintain a certain amount of life insurance for the benefit of the children.

A key reason for this is that the wording of these requirements in divorce agreements is often woefully lacking in specificity. Here's a provision out of an actual divorce agreement: "The husband shall maintain life insurance having an aggregate death benefit of $250,000 for the benefit of the un-emancipated children."

This kind of short shrift is typical, and this makes it easy for the spouse (the husband in this case) to comply with the letter of the property settlement, but in a manner that circumvents the intent of the agreement. The husband could buy the cheapest one-year term policy from a poorly rated company. If he develops a health issue, though, he will never be able to obtain insurance after the first-year term expires.

The norm for most life insurance provisions is to not specify the type of coverage. The type of coverage is just one of many factors you can advise your client and his/her attorney on during the divorce process-and help your client address when the divorce dust settles. Some considerations:

• The duration or permanency of the insurance commitment. If the youngest child will be emancipated in 20 years, a 20-year guaranteed renewable term would be a reasonable specification.
• What about specifying a minimum rating for the insurance company in the divorce agreement? This is an obvious issue for planners, but one that is rarely addressed in divorce agreements. Post-divorce, if your client is the insured, monitoring the status of the insurer is important to assure that the insurance obligation can be maintained or, if an issue arises, that the coverage can be shifted quickly.
• After all, a year ago, few planners could have imagined large, respected insurance companies having any issues. While you may fully understand the importance of evaluating carriers, or dividing coverage among several carriers if the dollars are significant, clients and matrimonial attorneys still do not tend to focus on these matters.
• If your client's ex-spouse's coverage lapses, and then age or health problems make replacing the lapsed coverage prohibitive or impossible, your client will face a considerable financial risk. Confirmation of payments and an arrangement to receive notice from the insurance company in the event of default is essential to protect policies.
• Advise your client's attorney to mandate in the property settlement agreement that periodic in-force illustrations will be prepared. If policy performance becomes a problem, include a mechanism to address it.
• Sophisticated clients are more likely to have their insurance in a trust, in which case the trust and the trustees should agree to all actions as part of the overall property settlement agreement. The trust might have to formally be involved in the proceedings.
• If affordability is an issue in light of the current economy, perhaps a blended term/permanent plan or a term with conversion features could provide needed protection for the long term with lower out-of-pocket costs.
• If existing policies are going to be used to fund divorce obligations, those policies should be evaluated. A step that's obvious to financial planners, but one almost always ignored by matrimonial attorneys, is to provide divorce attorneys and divorcing clients with an evaluation of existing policies.