Few couples standing at the altar think to plan for a divorce, but the financial fallout can reshape a client's future well-being.
"Marriage is about love, divorce is all about money," says Gabrielle Clemens, an advisor at UBS.
Financial advisors like Clemens who specialize in working with divorcees say they provide a critical service to clients, helping them land on sound financial ground. But doing so is not simple. It requires being aware of the planning hurdles and being prepared for intense emotional turmoil.
It's important to be upfront with clients about what's financially realistic, say advisors who specialize in working with divorcees.
Shelly Church, an advisor with Raymond James, suggests setting expectations early with prospective divorcee clients. "When I first meet them, I [start] by saying that if we are going to ultimately work together, you need to understand that I am going to be very candid with you because my goal is to make sure that you are going to be financially sound going forward and I may say things that you may not want to hear," Church says.
An advisor's ability to help a client recalibrate a financial plan depends in part on where the client is in the process, advisors say. If the assets have not yet been divided between the spouses, then that may be an opportune moment to judge if the client can realistically afford to keep that million-dollar home.
Indeed, advisors note that the home often has a lot of emotional baggage attached to it, complicating a client's view on whether it's worth keeping.
"It takes a lot of time and money to maintain it," says Charles Day, another UBS advisor. "If you're a newly single parent, then that becomes more of a burden. I'll have an opinion about whether you want the hedge fund or the bonds. But the home is often an emotional issue."
Advisors say that clients going through divorce, particularly those with little knowledge of the family's finances, face a reality check when confronted with what they are getting from the divorce and what their accustomed lifestyle actually costs.
"Quite often, and this is always amazing to me, women have very little knowledge of their financial picture," says Church, who is based in Naples, Fla. "It's like, OK, you've lived in this $2 million or $3 million house and that's going away. You're going to get X amount of assets, but it's going to radically change your lifestyle."
State laws have a huge impact on the divorce process. It's critical that a client consult a tax professional, as there are a number of tax issues involved, advisors say.
"Alimony is taxable; child support is not taxable," says Clemens, who is based in Boston. "I can't tell you how many people don't know that. Sometimes, the attorney won't put that in the agreement. That is something that clients need to know upfront."
EMOTIONAL ROLLER COASTER
Often, the most challenging part of the divorce process is not the financial aspects, but rather the emotional part.
"I don't even carry a calculator; I carry a box of tissue." Clemens says. "It's just heartbreaking to watch a couple in their 50s break up. It's emotionally devastating. And it changes the culture and dynamics of the family that spent maybe the last 30 years together."
She adds that she'll even go and sit with a client in the waiting room of an attorney's office, if it helps the client. "You have to be empathetic," Clemens says. "That's why if you can't help them cry and tell them it's going to be OK, then you can't do this kind of work. It's part of the service. You have to give them time and support."
Advisors should be aware that they are riding an emotional roller coaster with their clients and that this could be a lengthy up-and-down process. "First thing I say to advisors: Unless you have a lot of patience and can spend the time, then don't even go there," Church says. "It can be a very long process from meeting the client to the end of the divorce."
And, this is a particularly difficult client group to work with because it's challenging to get it right, Day of UBS says.
Day specializes in working with wealthy divorced women, some of whom do not have a lot of financial knowledge, he says. Day adds that he works hard not only to help craft a plan for his clients, but also to teach them about why they're taking certain actions.
"You're often explaining this to someone with very little financial background," says Day, who is based in Greenwich, Conn.
He says he likes explaining the how and why behind a client's financial plan. "My nightmare is that [a client] goes to a party, and someone asks, 'What did you do with the money from the divorce?' And they can't explain it. That means I failed," Day says.
To avoid that situation, Day regularly emphasizes and reiterates why the client's financial plan is structured in a particular way, meeting with her in person and providing her easy-to-read reports as well.
But there is a bright side to what is often a dark process. Successfully guiding a client through this can be deeply and professionally fulfilling, and also result in a much deeper advisor-client relationship, these advisors say.
"You're getting them through one of the worst things in their life, whether they wanted the divorce or not," Day says.
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