Lili A. Vasileff was in the midst of her own divorce, sitting in a circle of women at a support group, when she realized that few in the group understood the impact of the financial decisions they were making.
Even Vasileff, who worked in corporate finance and felt comfortable talking about money, found that there were few professionals to turn to who could help her determine which financial decisions would be right for her.
So, when she came out the other side of her divorce, she decided to launch the Association of Divorce Financial Planners, a not-for-profit professional association of financial planners based in Greenwich, Conn.
“Divorce is about two things: money and children,” Vasileff said. “The problem is that attorneys are legal experts not financial experts. I thought people deserved to know what the choices were and then what to do with those choices.”
The biggest thing Vasileff learned from her experience is that just any financial advisor won’t do. A financial planner who specializes in divorce can help clients navigate the difficult emotional and financial terrain ahead. For financial advisors looking for a niche market to attract more clients there are a few important things to remember before diving in.
1) One thing financial advisors who want to move into this area of expertise should figure out is if they are able to get paid for the work they do helping clients through a divorce. Many employers don’t let their employees have a separate income stream or separate kind of practice, explained Vasileff.
If advisors are not allowed to be compensated separately then how can they ultimately benefit from that client relationship?
“Divorce is a labor-intensive, hand holding process,” she said. If the hope is that after the divorce the advisor will gain two new clients, think again. Often both parties in a divorce feel compromised by the advice given during the process and the process may be tainted because they’re expecting that pot of gold at the end of the rainbow.”
Instead of risking losing both clients outsource the divorce financial planning to a specialized divorce financial planner that will return the clients once the divorce is complete. Don’t take sides.
2) Advisors should also be aware of each state’s divorce laws since they are all different. Figure out if you are in a community property state or in an equitable division state, said Daniel O. Barsnica, a chartered retirement planning counselor at Ameriprise Financial.
In a community property state, such as Arizona, California, Idaho, Louisiana, New Mexico, Texas, Wisconsin, and Washington, all assets — and debts - are split down the middle.
Retirement accounts, including 401(k)’s are considered assets and can be gone after as well in community property states. If the couple has been together more than 10 years and one of the spouses did not work outside of the house, that spouse is entitled to half of their partner’s social security paycheck as well as insurance coverage. An equitable division state is different because the court decides what is a fair and equitable division of assets.
3) “Divorce is not a mathematical equation,” Vasileff said. Just because a client has a certified public accountant doesn’t mean the CPA can tell them what they need to live on and how to divide the assets.
“It’s important to realize that it’s not just about how much money is available in terms of the law, but also how much can be liquidated and which investments are private and can’t be traded.” Some investments are not vested and a client must wait to access those funds. “It’s more than just numbers on a page,” she said.
4) Most divorces are caused by both partners not being on the same page as far as finances, said Barsnica, who has offices in both California and New Jersey.He said that advisors need to figure out what each person’s cash flow is by actually sitting down with three months worth of credit card statements and check statements and clearing up any road blocks along the way.
Collecting, inventorying and analyzing a couple’s finances based on reliable information is critical to the divorce financial planning process. Underestimating or omitting expenses in a budget could mean not having enough to live on later. Barsnica, who has worked for Ameriprise for six years with both high-net-worth clients and those just starting out, said that if clients don’t track or invest their money they will spend it.
“If a client earns $5,000 a month their expenses are between $4,900 and $5,100. If they earn $100,000 a month their expenses are between $99,900 and $100,100. How much people make they are going to spend unless they put it down on paper and track it.”
5) Don’t forget to have a client evaluate a divorce settlement on an after-tax basis before agreeing to a deal. Vasileff’s website suggests using a specialized divorce computer model to evaluate how much money a client will have three, five and 10 years down the road and takes into account assets, incomes, budgets, maintenance and child support, taxes, retirement plans, investments and educational expenses.
6) Divorce is a process not a product.
Financial planners are used to working with clients with a goal and the planner’s job is to give structure and measure how they set the goal, Vasileff said.
“Divorce is nothing like that,” she said. “Divorce can go from A to B and then to Z and then to M and any number of factors can throw off the process: emotions, behaviors, attorneys. As a financial planner you have to take a different timeline to the process and go with the flow and be at the beck and call of the legal professionals. The advisors are not driving the car. But as financial planners we are used to driving the car.”
7) Remember that when the divorce is over the financial planning is not. Don’t forget to have clients update their estate documents and change the beneficiaries on their life insurance policies, individual retirement accounts and wills. If not their ex-spouse will inherit their estate.
Life and disability insurance is important as well because it protects against unexpected death or disability of a client’s ex-spouse, which can mean a loss of maintenance, child support, college tuition or property settlement. And making a financial plan will help each spouse transition from married to single life by outlining financial goals and allocating financial resources.