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December 23, 2013

Advisors for the Financial Side of Divorce

Divorce-related financial advice is a growing niche, diverse in practices and philosophies

Illustration by Jon Krause Illustration by Jon Krause

Financial advisor Jeff Landers knew he had to differentiate himself in order to be successful—the question was how?

“I’d go to networking events and invariably there would be a dozen other financial advisors present, and we were all saying the same thing. I knew I needed a niche,” says Landers. “At the time I had a number of clients going through a divorce. I saw how complicated that was, how distressed the people were. They weren’t sure what to do or what they would end up with. That’s when the light bulb went off.”

Today, Landers heads New York City-based Bedrock Divorce Advisors, a consulting firm he founded in 2010 to help affluent women navigate the tricky terrain of divorce. The goal: a healthy financial outcome for the client.

Landers, who blogs weekly about divorce for Forbes.com, hasn’t met the majority of his clients in person. Many find him over the Internet and most pay him online through PayPal or a credit card. He charges $400 an hour with a non-refundable $4,000 retainer that is paid in advance. Post-divorce, Landers says, 90% of his clients move their assets to Bedrock Wealth Management, his investment management firm.

“By the time they get to settlement, we’ve been working together for a couple of years and I know everything about her. Because of the nature of divorce and all the disclosures, I know every bank account, every insurance policy, every brokerage account, every piece of real estate,” says Landers, a certified divorce financial analyst (CDFA) whose book Divorce: Think Financially, Not Emotionally was a top seller on Amazon last year on the topic of divorce.

“It’s 100% transparent. I know all of the expenses and all of the income to the point that I know how much she’s spending every month on cosmetics and getting her hair done. It’s that granular,” adds Landers, who only introduces his wealth management firm’s services at the conclusion of the divorce process. “A lot of trust and confidence build up as I’m advocating for her. It’s almost a no-brainer to get the assets.”

Growing Niche

The divorce niche, while still small, appears to be gaining traction, especially among investment advisory firms and independent broker-dealers. What’s driving it? First, the growing popularity of collaborative divorce, or “no-court divorce” as it is sometimes called, has given rise to advisory teams that include not only legal counsel and a divorce coach but a “financial neutral” whose job is to develop viable financial options for both spouses. The Institute for Divorce Financial Analysts’ CDFA designation and professional associations like the Association of Divorce Financial Planners have also thrown a spotlight on the emerging niche.

This year, two advisory firms—San Diego-based Pacific Divorce Management and Freedom Divorce Advisors of New Jersey—will separately roll out nationwide platforms to support financial advisors who want to specialize in divorce advice.

The niche is not without controversy.

Some in the industry, for example, disapprove of advisors who provide divorce consulting for free as a tactic to win assets post-divorce. In fact, the Association of Divorce Financial Planners earlier this year made it a requirement that members charge for their services at market rates.

“Some look at the divorce niche as a way of gathering either assets or some type of product sale on a post-divorce basis. There’s really nothing wrong with that. The question is what you do during the divorce,” according to certified financial planner Andrew Samalin, president of the non-profit organization. Divorce consulting, he adds, should be a standalone business without a quid pro quo or an arrangement that could potentially influence or bias the financial planning.

“If they charge nothing, the client is getting exactly what they paid for. I would never go to a therapist, an accountant or an attorney that charged me nothing,” he said. “Professional services cost money. There’s no moral hierarchy. We simply want to have a profession here.”

Controversy aside, many advisors who run a divorce consulting business are winning assets not just from the divorced client—usually the female—but from family law attorneys as well.

Lloyd Lowe, Sr., who heads LD Lowe Wealth Advisory in Dallas, developed a divorce niche 10 years ago when family law attorneys began steering divorcing or divorced clients his way. He doesn’t charge a fee until assets are transferred.

“Years ago, I opted not to do hourly billing for the initial consultation. The heavy lifting comes after,” he says. “What I’m doing is putting my best foot forward. The rest will fall into place.”

Lowe’s services pre-divorce include putting together a financial plan, retitling assets and home insurance, assisting with a home purchase and tax filings, and making sure estate documents are up to date. He’s had some tough cases: a stay at home mom with a special needs child; a client who was in rehab as her divorce occurred; a divorcing spouse who is a foreign national.

Lowe has 178 clients and $200 million in assets under management. Nearly half of his practice is divorce-based.

Lowe says he worries that the niche’s growing popularity will attract opportunistic and unqualified advisors who will make serious mistakes as they transfer assets over or deal with a Qualified Domestic Relations Order that they don’t understand.

“These clients are a specialized group of people and you need specialized knowledge to deal with it,” he notes. “The best part of what we do is put people back together again financially.”

Diverse Models

One of the most interesting aspects of the divorce niche is the variety of business models that exist within it.

Many advisors, like Landers, operate two businesses: the divorce-focused consulting practice that serves as a feeder to an investment management firm. Others, like Lowe, are traditional registered investment advisors who—even without a CDFA—have made divorce a specialty thanks to referrals from family law attorneys.

Then there is Indianapolis-based Holistic Wealth Advisors, a Raymond James & Associates affiliate that has been “divorce-only” since 2003 when partners Dave Hajek and Jason Llewellyn detected a void in the marketplace. With $225 million in assets under management, the partners market to divorce attorneys. Most of their clients are non-income earning spouses whom they do not charge for divorce advice. “Our end goal is to become their personal CFO,” says Llewellyn. “Our goal is to manage the money.”

There are also a few folks like Stephanie Maloney, a former stockbroker who started Financial Solutions for Divorce in California after going through her own divorce. “I was a stockbroker,” she says. “There were a lot of stockbrokers.” Maloney charges $300 an hour and works full-time dispensing divorce financial advice on two to three cases a day. She no longer manages assets.

And now, two very different platforms are about to take the divorce niche to another level.

Pacific Divorce Management has created a franchise model that will school financial advisors on collaborative divorce, mediation, divorce financial planning, trial consulting and expert testimony. There will be a two to three week training on-site in San Diego early this year, as well as training at the franchise partner’s location. Franchisees must have a CDFA designation and they will pay Pacific Divorce Management a one-time franchise fee and an ongoing annual royalty. Marketing, branding, operations, compliance and lead generation are all part of the offering.

“There’s a huge huge niche market for RIA’s especially to specialize in divorce,” according to Justin Reckers, managing director of Pacific Divorce Management and director of financial planning for Pacific Wealth Management.

Meanwhile, Noah Rosenfarb, a certified public accountant who heads Freedom Divorce Advisors and Freedom Wealth Advisors, has launched the Divorce Law Institute, a turnkey marketing system that will include marketing materials, white papers, webinars, case studies and regional peer groups. The program, organized like a university with semesters, will cost $5,000 a year. The institute will pay participating advisors a commission for referrals involving divorce financing, tax returns and any Qualified Domestic Relations Order.

“I will train FAs on advanced tax and financial issues in divorce, give them all the intellectual property I’ve developed plus give them the ability to earn commissions by offering QDROs, tax preparation and litigation financing,” says Rosenfarb. “There’s no reason they can’t be like us: a personal CFO. It’s a terrific business for anyone who wants to be in the divorce space and wants to grow earnings.”

Divorce and Dollars

Along with alimony and child support, one of the top financial issues in a divorce is: Who keeps the marital home?

The issue is trickier than you might think.

“I try and come in very squarely on advising people on what the financial cost of keeping a home is,” observes Renee Senes, a partner with Senes & Chwalek Advisors in Concord, Mass. “And, particularly if you’re a woman, what’s the trade-off? Are you giving up liquid assets? Are there retirement assets that will grow tax-deferred? Are you giving up a pension? I dig in and say never give up guaranteed sources of income.”

What’s not so obvious, perhaps, is the difficulty a woman might have—even with a sizable divorce settlement—in refinancing a mortgage in her name alone. Most banks count alimony and child support as income, but not until they’ve been showing up consistently for one year and typically have a multi-year run. Another concern: Can the ex-husband get a mortgage in his own name while carrying the old one? And if you do finally decide to sell the marital home, who absorbs closing costs and what are the capital gains implications?

“It may look easy,” says Senes. “It isn’t.”—EU

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