Divorce Doesn't Have to Be Contentious

Divorce is one of the emotionally charged life transitions that prompts clients to look to their financial advisor for guidance. It can be the start of a contentious and financially stressful process — one that can tax all parties involved and last for years.

Collaborative divorce is a relatively new approach for couples that are seeking a better process. Similar to mediation, this type of divorce brings trained, independent professionals together to educate the couple on key issues and help them reach an agreement. Each spouse retains an attorney, and the attorneys then decide on the makeup of the team. Typically, a neutral financial professional and a mental health professional are part of the process. All of the professionals on the team have been formally trained in collaborative divorce.

The team’s sole purpose is to help the couple reach an agreement that is fair to both spouses. Each attorney shares key information provided by their client with the rest of the team, so that everyone can make their strongest recommendations.

If the collaborative process breaks down before a marital settlement agreement is reached, all four of the professionals involved must recuse themselves from participating in the case going forward. This is one of few risks as a new team is required to “reboot” the process — a potentially expensive consequence.

Financial advisors should bear in mind a few important elements when guiding clients through a collaborative divorce:

• Collaborative divorce emphasizes an equitable outcome. The advisor will be tasked with taking a thorough inventory of the couple’s assets, debts, income and expenses, and everyone is free to discuss the perceived value to each party. For example, if one spouse has an emotional tie to the family home, they may willingly attach more value to it. The beauty of collaborative divorce is that there are no secrets and so the couple has the ability to control their own settlement.
• Advisors’ expertise also will come into play during technical asset evaluation. Consider that a 401(k) carries tax implications, while a no-fee bank account holding the same amount does not. As a financial neutral, the advisor will provide guidance as to the real worth of assets. The tax implications may be overlooked if left to the courts to decide.

• Whether a divorce is collaborative or otherwise, spouses need to prepare to separate financially. One common challenge comes with credit card concerns: Non-working spouses should take advantage of the joint credit profile while they can. If they don’t act while still sharing a profile, they may not qualify for credit cards once the divorce is finalized. They also should get their estate plans and powers of attorney updated as soon as they decide to begin the process.

• Collaborative divorce is designed to be more amicable than other approaches, but that does not mean that it won’t be painful for participants. If your client is entering into proceedings, encourage them to prioritize their mental health and see a professional. Delaying or de-emphasizing the emotional impact of the situation can lead to significant distress that manifests both mentally and physically. And perhaps most important for advisors: Don’t take on the role of the mental health professional. Trust the collaborative team and make it easy for clients to access the right people.

Collaborative divorce is still working its way into the mainstream. There are no nationally recognized standards or uniformity, which means every jurisdiction may do things differently. Advisors should look for regional training groups to familiarize themselves with relevant guidelines, and find other professionals involved in the practice.

Clients often look to their advisors to provide the best path forward, financially and otherwise. Collaborative divorce can help provide a smoother path and effective direction for clients embarking on a new stage in life, and advisors can be the guide to get them there.

Michelle Cross, CFP, CPA, CDFA, is a wealth advisor at Allegiant Private Advisors, located in Sarasota, Florida. Advisory services are offered through Commonwealth Financial Network.