Cindy Richey, CFP®, CDFA®
When high-net-worth couples decide to divorce, the first thing they think is, “I need a good attorney.” In working with divorcing women, I have found that many people don’t realize that other key advisors are essential in making sure their divorce protects what’s most important to them.
Your hand-picked divorce team can make the process easier and less stressful at a time when you need it most. Here is a summary of the key roles and the value each advisor can bring to the table.
The Legal Team
1. A mediator. Many high-net-worth couples want to negotiate the terms of their divorce fairly and equitably. Equally, they want to avoid the high costs and high drama that go with a contested divorce. A mediator is trained exactly for that task.
Rather than have all communication funneled through separate attorneys, the mediation process starts with both sides sitting down together, getting the facts on the table, and defining the most important needs for both parties. Issues can often be worked out in one mediation session that could take months of back-and-forth between attorneys.
Many mediators are also licensed attorneys. While they cannot represent or favor the interests of either party, their legal training gives them knowledge of the law.
Mediation is generally not an option in a contested divorce. But if your financial situation is straightforward and you and your spouse are mostly in agreement, mediation is a good place to start.
2. Your personal attorney. If you and your spouse are at odds, having separate divorce lawyers is the only option. Your attorney will focus only on you and will try to negotiate terms that are in your favor. Of course, your future ex-spouse will have an attorney doing the same thing. You may end up with a better divorce settlement going this route, but you will also spend more time and money in the process.
Suppose you and your spouse can work out the big picture of your financial settlement on your own or with help from a mediator. It is still essential, even required in many states, that you have an attorney review the agreement, representing only your interests, before you sign.
3. QDRO specialist. If retirement plan assets, such as a 401(k) or pensions, are to be divided, a special court order—the qualified domestic relations order (QDRO)—is needed. Division of retirement plan assets is a complex process, and your attorney may outsource to a QDRO specialist.
QDROs take much more time than people realize, so it’s best to start this process as soon as you know you will divide retirement plan assets. Waiting until the divorce is finalized to address the QDRO is one of the biggest mistakes people make in divorce.
4. Estate attorney. Once the divorce is complete, you will need to update your will, trust, and beneficiary designations immediately. While some divorce attorneys may have estate planning experience, this step is typically completed by an estate planning specialist.
The Financial Team
1. Your current financial advisor. Your financial advisor can be of great assistance in providing details such as the accounts you and your spouse own and the tax cost basis of marital assets. If you have a long history with your advisor, they can potentially help you identify the nonmarital assets that each of you owned before marrying.
Your investment advisor can also assist in the division of assets once your divorce is completed. The important point is that you and your spouse have equal trust and confidence in your investment advisor. Ideally, your advisor should have the CERTIFIED FINANCIAL PLANNER™ (CFP®) certification or similar professional designations, a spotless regulatory record, and work with you on a fee-only basis.
Unfortunately, in many cases, one spouse—usually the wife—does not have a strong relationship with the investment advisor. They may feel at a disadvantage in the process of understanding financial assets. If that is your case, read on.
2. Separate financial advisors or a “financial neutral.” Just as couples need separate attorneys to focus solely on their needs, they may need separate financial advisors. Your advisor will work with you to help ensure you fully understand the financial impact of your decisions. It may take more time working with separate advisors, but it can also help you avoid big mistakes.
Ideally, a divorce financial expert would have the CFP® certification and additional training in divorce financial issues, such as a Certified Divorce Financial Analyst® (CDFA®) professional. They should also have a spotless financial record and work on a fee-only basis.
Another benefit to having your own financial advisor is their ability to look at retirement plan projections and “what if” scenarios before the divorce is finalized. This step in the divorce process is probably the single biggest thing that couples can do to alleviate the financial stress of divorce.
Instead of wondering if you’re making the right decisions and just hoping for the best, you have a trained financial professional in your corner, looking over everything that financially affects you both today and in the future.
An alternative to having separate financial advisors is to engage a “financial neutral” who has a role like the mediator but specializes in your finances. In this case, your current investment advisor would provide information to the financial neutral, who is often trained in mediation as well as financial planning.
3. Tax advisor. High-net-worth couples often have complex financial and tax situations, such as ownership of business interests or LLCs and investment real estate. Engaging your tax professional early in your divorce will help make sure you have the correct financial information. They can also advise on the pros and cons of your financial settlement from an income tax standpoint. Typically, a tax advisor has represented both the husband and the wife for many years, will be neutral, and adheres to a code of ethics to this effect.
4. Insurance agent. Your current insurance agent can provide all the information you need about existing coverages. They can also assist you post-divorce in making changes to your coverages as needed.
Our fee-only wealth management firm in Kansas City, Mo., works with divorcees both during and after their negotiations. We have found that having a hand-selected divorce team not only helps secure the best terms possible but also helps build confidence in their financial future.