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GETTING PERSONAL: Divorce Planning More Art Than Science
By Tara Siegel Bernard
A Dow Jones Newswires Column
NEW YORK (Dow Jones)--Sara Stolberg, a financial advisor and mother of three, understands the intricacies of divorce. About three years ago, she and her husband split after 16 1/2 years of marriage.
"I was capably represented, but my attorney didn't have the financial expertise needed to avoid the pot holes on the way to a good settlement," says Stolberg, of Lincolnshire, Ill..
Since then, she's received certification from the Institute for Divorce Financial Analysts, complementing her financial-planning background, in an effort to help others understand the long-term financial consequences of a divorce settlement.
"What I bring to the table is a holistic approach, seeing (my clients) in their entirety," she says. "I am able to use my experience to help them get through the emotional roller coaster."
While financial planners each have their own style when handling divorcing clients, they stress the importance of delving beyond finding a seemingly equitable plan to divide property. Instead, they must take a long-term view - while uncovering hidden tax implications - on how a couples' assets can be most effectively parlayed to support and maintain their lifestyle as a newly-minted single.
Advisors with designations in divorce planning - in addition to the IDFA, the Financial Divorce Association also provides certification - often begin with constructing a financial snapshot of the couple using software that helps them illustrate how much their assets are worth, while modeling the consequences of various settlements. A mere division of assets based on their face value can lead to unforeseen problems down the road.
"A lot of attorneys aren't as concerned as to the financial implications of a settlement as opposed to whether it seems reasonably fair," says Helen Modly, a certified financial planner and divorce financial analyst with Focus Financial Consultants in Middleburg, Va. "There are tax issues involved in divorce that are very specific. There are some landmines that if you are not aware of can really hurt your client."
For instance, she had one client who thought she would get a "big pot of money" from the sale of a rental property - her only asset - that she jointly owned with her former husband for 20 years. She didn't. In fact, she received very little because of tax implications related to depreciation.
However, the challenges of divorce planning clearly move beyond the financial. Advisors also need to be prepared to handle the emotionally charged nature of such a life-altering event. In fact, Modly and her associates had noticed many of their divorcing clients displayed signs of attention deficit disorder; as it turns out, they met with an ADD coach who confirmed their suspicions.
"She said we were absolutely right, that this kind of trauma creates the same kinds of symptoms," Modly says. "It was really fascinating for us to work with this coach on how we can present things to our clients. Instead of a long paragraph, we now give bullet points with a (plan of) action. Sometimes they just need to have a list they can reference. It's entirely agenda-driven."
While lending a sympathetic ear can often help advisors' bond with a client, they agree that you also need to set limits and recognize when it's time to discreetly suggest they pay another professional.
"There are times when I feel I have to diplomatically suggest that they mightnot want to pay me by the hour, they might want to pay a coach or a therapist to help them work through a problem," Stolberg says. "It could be a personal problem like depression, or coaching to help them prepare for re-entering the job market or getting a resume together."
Indeed, it's often effective to network with other professionals in the divorce arena - from attorneys, therapists and business appraisers to child evaluators - while taking notes on their specific approaches so you can develop your own referral service. Helping to pair your client with another compatible professional can also eventually lead to new referrals.
Another specific approach that is gaining traction is "collaborative divorce," where the spouses mutually decide to settle outside of court and sign an agreement with their lawyers which holds them to that pact. If they break it, all professionals must resign from the case. Collaborative divorce often involves a team approach, including financial planners, therapists, as well as divorce coaches, child specialists, among others.
"If financial planners are part of the team, they are neutral," says Carol Ann Wilson, a certified financial planner and president of the Financial Divorce Association, in Boulder, Colo.
But the team approach isn't for everyone. For instance, Judy Heltzel, a certified financial planner with Capital Financial Planners in Salem, Ore., finds that working with one party in a divorce is more effective.
"I feel I really have to take a real advocate position because, unless it's a very amicable divorce, and even then, they have to be sure they are taking care of their financial situation and not walking by issues that could inadvertently cause problems," Heltzel says, adding that her previous life as a social worker has served her well in her current incarnation.
As far as pricing goes, financial planners typically charge an hourly fee, ranging from $100 to $200 an hour. However, often, it leads to a more permanent relationship.
"The real challenge is how do you work with these clients on a profitable basis. They can be a black hole for time," Modly says. However, "once you've worked with a woman in this very traumatic year...the question of who will manage their money never comes up," she says. "We end up with a client for life."
(Tara Siegel Bernard is one of four Getting Personal columnists who write about personal-finance issues ranging from new tax proposals to education-funding strategies to estate planning.)
-By Tara Siegel Bernard; Dow Jones Newswires
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Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete initial and ongoing certification requirements.