No matter how amiable it may appear from the outside, divorce is a heart-wrenching, emotional issue for at least one, if not both clients. In this post, we will address your role as advisor and discuss what you should do, and not do, when clients divorce.
When you have a husband and wife as clients, you may have forged a stronger relationship with one spouse. Therefore, when divorce occurs, it is vital to demonstrate impartiality. By doing so, you will help foster an environment where your clients feel secure. Each spouse has certain needs and it is up to you, as their advisor, to help the process go smoothly.
A divorcing couple with substantial wealth will likely have more complexity than one with less wealth. Here are a few good things to know. Is there a valid pre-nuptial agreement? What is the reason for the divorce? Was infidelity a factor in the divorce? Was either person involved in a previous divorce? Use your judgment when asking questions. In any event, as advisor to both parties, you can provide tremendous value during a tumultuous time.
Advisor as Referee? No Way
The first thing I would recommend is to not try to be a referee, putting yourself in the middle of their marital battle. No matter how unbiased you may be there is a high probability that one spouse will imagine that you are favoring the other. I mention this for two reasons. First, you may have had more interaction with one spouse. Second, divorce is a broken trust and when it occurs, it can easily cause a person to feel more distrustful and suspicious. They may be convinced that they should have seen it coming. They may feel betrayed, belittled, depressed and experience a host of other negative emotions, which can lead to greater mood swings.
In short, they may not be quite as rational as they were when things were good (assuming there was such a time).
Disclosure Is Key
When you first hear the news of an impending divorce of a client couple, be empathetic. Let them know that you are there to help in any way possible.
If your clients live in a common law state, then the value of each spouse’s wealth may not be equal. Hence, the property settlement may be open to increased negotiation.
If they live in a community property state—and assuming the absence of a pre-nuptial agreement, a prior domicile in a common law state, or gifted or inherited property—each spouse is legally entitled to one-half of everything. There is still some room for negotiation, but if all assets are community property, one spouse must give consent when accepting less than 50% of the total.
There are many more issues to consider, such as preparing a property settlement, alimony and child support, but this is a good start. Just remember, emotionally speaking, divorce is somewhat like losing a spouse due to death. Both involve loss.
Therefore, be sure to demonstrate empathy, fairness, and respect to each spouse. It is also important that each spouse knows you will hold his or her comments in confidence.
Until next time, thanks for reading and have a great week!
Read Mike Patton’s blog on how advisors should respond to another kind of client loss: Adding Value After the Death of a Client’s Spouse