When asked the secret of his long marriage, comedian henny youngman said, “We take time to go to a restaurant two times a week–a little candlelight dinner, soft music, and dancing.” A pause. “She goes Tuesdays, I go Fridays.” Sure, this is the same guy who cracked, “My wife dresses to kill. She cooks the same way,” but he did manage to stay married to that wife for several decades–until death did them part, as a matter of fact. That’s better than a good part of the American population, which has the highest divorce rate in the world. Currently, more than half of all trips down the aisle will end in a trip to a lawyer’s office.
Untying the knot is rarely pretty, of course, and sometimes it can be downright dangerous. Go to any courthouse in America, and chances are you’ll have to walk through a metal detector before you’re allowed in. Is it to guard against the homicidal maniacs, the serial crazies, the defendants charged with assault and battery? Nope, says financial planner John Connell, 56, who specializes in financial planning for divorcing spouses. It’s for the folks headed to divorce court. “They’re shooting the attorney on the other side, they’re shooting their wife, or whoever they’re mad at,” he says. “All that hardware is for the marital dissolution cases.”
So far, at least, Connell has avoided getting shot at, and the low-key CPA-planner doesn’t even seem to mind the violent emotions that swirl around him and the five other members of the financial planning and divorce litigation services department at Causey Demgen and Moore, a large accounting firm in Denver. In fact, he says, colleagues outside the department envy the ever-roiling intrigue. “The rest of the office loves what we do here, because the stories are always so intriguing,” he says. His days are not as dramatic as his favorite television show, “Law and Order”–but sometimes they come close. “Divorce cases are not like, ‘Where were you on the night of . . .?’ and ‘Didn’t you really tell Detective So-and-So this, and now you’re changing your story?’” He laughs mildly. “But it can be hugely emotional and traumatic for the clients involved.” Connell has seen some estranged spouses dissolve into tears on the stand; others have stormed out of the courtroom. And turmoil isn’t just reserved for the clients. Although four out of five of his clients will settle out of court, Connell frequently takes the stand as an expert witness on matters related to the division of marital assets, an experience which opens him up to getting screamed at by the opposing side’s attorney. Needless to say, this is not always a picnic. “I can’t really get into to detail about it,” he says, “but yes, absolutely, I have had [the experience of being screamed at] happen many times.”
Crash Course in Finance
Despite the melodrama, Connell prefers to think of his work in terms of a less adversarial profession: teaching. Since many of his clients have had minimal involvement in their families’ finances during their marriages, education is paramount. “I tell people, ‘We can do your financial plan very easily, but unless you understand the process and are comfortable with the process, we haven’t accomplished what we set out to do,’” he says. “A big part of my responsibility to my clients is being a teacher–educating them about the process, what their options are, and how to monitor their situation as it changes.” He’s mindful not to generalize about people, but he finds that women ending lengthy marriages tend to be the least knowledgeable about money. “You have to be careful how you say this,” he says, “but frankly, [a lack of financial knowledge] happens mostly with women who have been in marriages a long time. A lot of our clients are women who don’t work and have never had to take charge of the responsibility for their own finances. Their husbands took care of everything.”
Not only do the women have the least financial experience, after the divorce proceedings begin they’re less likely even to have a planner at all. “Ninety-five percent of the time, the allegiance of the couple’s planner is to the husband,” says Connell. “The wife feels like she needs somebody to represent her, which is one of the reasons we represent more women than men.”
Most clients come to Connell just as their divorces are getting rolling; some stay on just until their divorces are settled, while others remain clients for years afterward. “We work with them from when they’re crying and they hate the SOB, all the way until they get to the point where they’re saying, ‘How did I ever stay married to him for so long?’” he says with a chuckle. “They [all] stay until they get on their feet, and then some leave and others stay for the long haul.”
The most rewarding part for Connell is seeing clients weather the emotional storm of divorce and gain confidence in their ability to make financial decisions. “It’s very difficult for them to get through the divorce, and afterward they’re very scared and timid for the first year or so. As time goes on, they become more and more confident, they realize they can stand on their own two feet, and they’ve become much more comfortable with financial matters,” he says. “I love the little notes that say, ‘You helped me get through a difficult process.’”
Fair Is Fair?
And a difficult process it is. Regardless of how you measure the financial stakes (Connell’s clients are wealthy, so their divorce settlements aren’t so much a matter of putting meals on the table as maintaining a certain well-heeled, well-wheeled standard of living and facing the “dilemma” of making $5 million last for the rest of their lives), the emotional stakes are always sky-high; having the hubby try to run off with more than his fair share invariably grates on the nerves whether the imbalance is $500 or $500,000.
With the spouses issuing death warrants on each other and attorneys looking daggers at one another across the courtroom, Connell often finds that he and the opposing side’s financial advisor or accountant can make peace where no one else can. “It’s much more effective if you work with the advisor on the other side instead of working against him, and frequently–because of the emotions of the clients, or maybe the personalities of the attorneys–it’s very typical that we CPAs can get together and resolve issues that can’t seem to get resolved on another level,” he says. “CPAs aren’t as adversarial as attorneys, and generally we can say, ‘Here’s my point of view; what’s yours?’ and try to understand the things the other person is saying.’” Since both planners have generally worked on both husbands’ and wives’ cases, they know each other’s perspectives and are familiar with each other’s arguments. And without the pressure of “winning” or “losing,” the advisors are free to work toward a reasonable settlement that will satisfy both parties.
Despite the stereotypes of vindictive, finger-pointing spouses, Connell maintains that most divorcing couples don’t enter into the divorce proceedings with fire–or dollar signs–in their eyes. “Everyone always starts out by saying, ‘I want to be fair,’” he says. “That’s what everybody always says.” There’s just one problem: Once the divorce moves from the mature we’re-better-off-apart stage to the grabby who-gets-the-Porsche? stage, “it becomes very obvious that each side has a very different outlook as to what fair means.”
To figure what fair really does mean, Connell assigns the client some homework. Kristen Henry, whom Connell assisted with her divorce planning in the mid-1990s and for whom he still acts as a financial planner, remembers making a list of how much she spent per month on everything from clothing and recreation to medical services and utilities. “I was leaving a 29-year marriage, and I had a standard of living that I had grown accustomed to and wanted to maintain as much as possible,” says Henry. “So it was important for me to come up with figures for John to use in his calculations.” She also told Connell what kind of house she’d be comfortable living in, so he could calculate how much her mortgage payments, utilities, and insurance would cost.
Once he knew how much she felt she’d need, Connell ran simulations based on the various assets up for grabs in the divorce and on various life choices that Ms. Henry could make. What if she took most of the settlement in retirement plan assets? What if she took the house, or another, less liquid, asset? What if she lived in a slightly smaller house? What would happen to her nest egg if she took a job for five years? What if she continued doing volunteer work, rather than being employed, instead?
The primary purpose of this “capital sufficiency analysis” is to guide clients’ attorneys in choosing their battles in the courtroom. If the attorneys know that the client’s financial welfare is dependent on securing a certain percentage of the spouse’s retirement plan assets (which is often the case for women who have never worked, says Connell), they’ll fight tooth and nail for those, while compromising on other matters.
But the analysis is also a lifesaver for clients who want concrete numbers to hang onto. “When you’re going through a divorce, you’re scared to death–you don’t know what to expect,” says Henry. “But this way, every time we got a new proposed number for what the settlement could be, they could recompute everything, not only my needs for the immediate future, but what I’d have for the rest of my lifetime.” For Henry, the best part was knowing that her housing needs were accounted for. “I wanted to own my own home, but I didn’t want to buy something that was more than I would be able to afford over the course of time,” she says. “But when you can put things down on paper and really spell it out, you know where you stand, and you can make plans.”
Divide and Compromise
Over the past several years, Connell has given speeches on divorce financial planning to CPA societies in Michigan and Oregon and trial lawyers throughout Colorado, and in 1995, he published a book (now out of print) called Financial Planning for Divorcing Couples.
True, it might seem odd that Connell, who has never been married or divorced, would specialize in divorce planning, but the field is more of a natural fit for him than you might think. During his 15 years at Touche Ross, Connell spent much of his time handling business valuations. When divorce attorneys began asking him to help assign values to companies jointly owned by couples who planned to split, other financial questions naturally popped up during the process. Soon he began applying his general business valuation, tax, and financial planning knowledge to planning specifically for divorcing spouses, and in his 11 years on the 46th floor at Causey Demgen and Moore, guiding clients through the financial aspects of divorce has been his primary work.
“Who gets the kids?” is usually the first question in the break-up of a marriage, but “who gets the house?” is generally a close second. Will the spouse with custody of the children keep it so that the kids won’t have to change schools? Will the couple sell the house and split the proceeds to buy two smaller ones? While these questions have obvious financial implications, they also have an emotional component as well. Whichever spouse loses out on the house often feels cheated at having to leave the family home, and the prospect of seeing the ex-spouse’s new flame move in only makes things worse.
The next questions usually involve retirement plans and other investment assets, and here is where spouses’ ideas of what is fair often diverge (if they haven’t already). In a single-income couple composed of a dentist and a stay-at-home spouse, it behooves the homemaker to take as many retirement plan assets as possible, particularly if future employment is not in the cards, and to try to get as much as possible in alimony. Conversely, it behooves the dentist to hang onto as much of the retirement plan as possible and instead give away income-generating assets, thus reducing the amount he or she will be required to dish out as alimony (also known as “maintenance”).
For single-income couples in which the working spouse has a medical or law practice or other small business, business valuation also plays into the maintenance equation, often to the chagrin of the working spouse. The greater the value of the business, the more money the working spouse will be expected to contribute toward the “maintenance” of the non-working spouse–in effect, punishing the working spouse for being successful, and for having built a business that seems poised for additional future growth. “If there’s one professional in the marriage, that’s always a bone of contention,” says Connell. “[They say], ‘You’re putting a value on my practice, and what you’re valuing is my getting up and going to work in the morning, and now I’ve got to give up more of the other assets?’ That’s very, very irritating to a lot of people.”
Irritation also arises regarding how long maintenance payments should continue. Do payments stop when the ex-spouse remarries? What if the ex-spouse is living with a “significant other” without remarrying? Should the maintenance-paying spouse really be expected to dole out money to support the ex-spouse and the ex-spouse’s new flame? Connell recommends cohabitation clauses to prevent such awkward situations. “Guys don’t usually like to pay for their ex-wives to support other guys,” he says, “so sometimes the agreement might provide for termination of maintenance in the event of remarriage or cohabitation.”
Besides maintenance, the other major bone of contention is child support, says Connell. How much is really needed for Johnny’s clothes and meals and soccer cleats, his piano lessons and baseball camp and movie tickets? And what about that computer and printer he says he needs for school? What about his medical expenses?
In Colorado, where Connell practices, statutory guidelines prescribe specific amounts based on the parents’ incomes and the number of nights the child spends with each parent. The more nights the child spends with a parent, the more child support that parent is entitled to; the more a parent earns, the less child support he or she is entitled to. The tables provided in the statute make computing child support payments easy, says Connell, but only up to a combined income level of $15,000 per month. “Most of our clients’ incomes are substantially greater than that,” says Connell, “so the guidelines don’t really help us.” Most parents, of course, would love to have this problem, but still, the lack of specific guidelines poses a difficulty: “It really just comes down to, ‘Okay, how much should I really give you for those kids?’”
What’s Yours Is Mine, and What’s Mine Is Mine, Too
Even after child support and maintenance payments are settled, thorny issues remain. For instance, what to do about assets that never really moved from the realm of “mine” to “ours” in the first place? “The laws are relatively complex with regard to proving separate property,” says Connell, “and the burden of proof is on whoever is asserting the separate property claim.” Still, he currently has five clients for whom he’s working on separate property claims, hoping to prove that the clients owned certain assets prior to their marriages and thus have a right to a greater portion of those assets after the marriage breaks up. Consider this example: If a young bride’s grandparents gave her $100,000 worth of IBM stock before her wedding day and today that $100,000 of IBM stock is worth $1 million, in Colorado and in most states, $100,000 of that would be considered separate property, while $900,000 would be marital property subject to equitable division.
What makes things even more fun is that “equitable division” is not what it sounds like–it’s not just splitting something 50-50. If no “marital effort” was made toward increasing the value of the stock–i.e., if the husband never touched it–he would receive far less in the equitable division of the asset than if he’d traded it and bought some GM stock, sold that and bought some AT&T stock which then split into the Baby Bells, and then sold some of that stock and bought something else. “In that case, there was marital effort involved in generating that income,” says Connell. “This is the kind of situation where tracing separate property can get very complicated and very expensive.”
While it’s unlikely that divorce will ever be a simple matter, and the likelihood of making it a jolly lark remains very slim, John Connell seems to have found a way to bring some order to the muddle and turmoil of divorce.
“He was always the voice of reason in the midst of everything,” says client Kristen Henry, who praises his empathetic style, clear explanations, conservative investment strategies, and easy going calm. Clients may emerge from their divorces with broken dreams, she says, but at least they can take heart in the knowledge that their financial matters won’t become a nightmare.