Author: David Kelman, Financial Advisor
Divorce is an emotional process, but at its core, a business transaction. Many matrimonial attorneys are one dimensional in their approach to the divorce process and also to the management of client expectations, meaning that they focus solely on the mechanics of the legal process and not on the broader outcome of ensuring that their clients leave with a solid foundation for the next chapter of life and psychological confidence in their ability to move forward. Integrating other professionals into the process early on can help to effectuate a more expeditious and favorable outcome for the clients. A financial advisor who has experience in working with divorce can be an invaluable member of the team.
Role of the Financial Advisor
An independent, objective advisor will work with the attorney and client to coordinate several important aspects of the process that are generally not the expertise or the focus of the matrimonial attorney (and for which the attorney is not paid). The four pillars of this integrated team are: financial advice (including financial planning, budgeting, and cash flow analysis), estate planning, accounting, and insurance. The financial advisor will act as “quarterback,” helping to oversee these non-legal aspects of the process. Introducing the advisor to the divorcing client early on in the process is ideal, as they can help the client to evaluate different settlement/support scenarios, provide insight as to how long the money should last and help to set reasonable expectations regarding what type of lifestyle the client may afford going forward. The advisor can integrate into the planning/budgeting expenditures such as college or real estate purchases, among others.
It is also important for divorcing clients to re-examine and revise their estate planning prior to the end of the divorce. For starters, if something were to happen during the divorce proceeding, assets would likely go to the spouse, which may not be what the divorcing client wishes once the action is commenced. An experienced financial advisor will have in-depth knowledge of estate planning strategies, can make introductions to outstanding trust & estate attorneys, and work with divorcing clients as they navigate the process of determining how to structure their estates. It’s important to emerge from the divorce with a thoughtfully revised Last Will and Testament and other estate planning documents.
Much like the estate planning component, it is important that divorcing clients revisit their existing insurance policies. It is likely that the client’s current insurance will benefit the spouse, which may be not be desirable at this juncture. A seasoned financial advisor can work with the client and the insurance professional to help determine the amount of insurance necessary and the type of policy that is most suitable. The advisor will have an understanding of the “big picture” and can be valuable in helping the client to think through what is really necessary given what are likely to be post-divorce assets, income, and lifestyle needs.
The client will most likely not want to share the same accountant with their spouse and it is important to develop a new relationship before the divorce is concluded. A good accountant will work with the client and the advisor to understand tax implications of certain decisions made during the divorce process (such as selling the marital residence), as well as those of any support obligations or income (child support is not taxable, whereas spousal support is taxable as ordinary income). The advisor will work with the client and accountant to integrate the impact of the accounting decisions into budgeting, financial planning, and cash flow analysis.
Divorce is expensive and emotionally draining, and the decisions made during the divorce will affect the client and their children for years to come. Having the right team in place to ensure the optimal financial settlement and build a strong foundation for the future is critical to a successful long-term outcome.
About the Author: David is a financial advisor. With over 15 years of advisory experience, David advises high net worth individuals and families on a full array of wealth management solutions, including asset allocation, portfolio construction, and plan implementation. David also works closely with clients’ existing professional networks and facilitates new introductions, as appropriate. David’s expertise combines investment banking, M&A (Mergers & Acquisitions) analytics, private wealth management and entrepreneurial experience. He leverages his broad range of skills to help cultivate sophisticated investment strategies and integrated wealth management plans.