Practice Management Tips for Life Altering Events - Part 1: What To Do When Your Clients Get Divorced

By Karla Paxton, Technical Relationship Manager on Friday, July 22nd, 2011

Sometimes, when you’re a financial advisor, you can end up feeling more like a therapist than a financial specialist. As a trusted advisor, you not only have access to the client’s financial picture, but to his or her private life as well. That’s especially true when a life altering event changes one of your client’s lives, such as a divorce, death, marriage, or any other momentous event. 

This will be the first in a series of blogs about what to do when life altering events change your clients’ lives—and in the process, alter your relationship with them, too. In this case, we’ll look at do’s and don’ts for advisors when your clients go through a divorce.

First things first: Remain neutral.

When your clients notify you that they are getting divorced, your first order of business is to remain neutral. Try not to get involved with the emotions and drama of the divorce, and be careful not to take sides. You are there to provide the attorneys and the accountants with your clients’ financial picture, not to be the arbiter of the dispute.

“Keep your wits when all those around you are losing theirs.”

 Once the divorce is final, you will also be asked to divvy up the assets according to the Qualified Domestic Relations Order (QDRO). As you’ve probably already discovered, this can be an emotional time for the couple that’s splitting up. When they actually see assets being taken out of their account and deposited in their former spouse’s account—things can get a bit tumultuous or even nasty.

That’s why it’s important for you to stay level headed. Work with your clients to try to figure out ahead of time whether or not their assets should be liquidated…or whether the assets will be transferred, and what the final disposition should be.

As you work with your clients, consider the following:

  • Tax consequences of the divorce agreement
  • The process of dividing and valuing property fairly
  • Determining how much alimony and/or child support is appropriate and for how long
  • Modeling the future values of retirement and pension funds

Of course, others will be weighing in on these matters as well—such as attorneys and mediators. But keep in mind that you are integral to the process, and your input to the divorcing couple and their other professional advisors is critical.

Furthermore, you need to examine what the financial future will look like for the divorced couple—after taking into consideration variables such as inflation, cost of living adjustments, changes in custody agreements and other issues.

You will also need to take into consideration any trust accounts in which you are the trustee, or on any of the children’s accounts you may be advising on. Make sure that you are included in the decision as to who will be managing and advising on these accounts after the divorce.

What if you’re asked to take sides?

Sometimes, when the gloves come off in a divorce, you may be asked to take sides. In certain instances, it’s hard to avoid becoming a partisan player in the dispute. In which case, there are three options for minimizing your firm’s risk and the loss of goodwill from affected parties.

  1. If you share your practice with other advisors, have them work with one party, while you work with the other. This enables you to work together with the other advisors on the financials, while you each deal with the individuals separately.

  2. Choose a side. Keep one party at your firm and refer the other party to another firm. This is a step you’ll probably end up taking anyway after the divorce is final and the assets have been split—in order not to create a conflict of interest.

  3. There are professional financial analysts who specialize in advising on divorce matters (example: You may wish to refer your client to these types of specialists; they’ll handle the meetings on contentious issues, while you focus on the allocation and other financial matters.

Bottom line: You have alternatives when dealing with a client couple that is going through a divorce. If you act in a discreet, unemotional, financially-insightful manner, you will probably remain the trusted advisor of at least one of the litigants—ensuring that a sizable portion of the clients’ business remains yours.

You Might Also Be Interested In:

comments powered by Disqus