There are two complex subjects in a divorce where a financial advisor can be immensely helpful: structuring divorce settlements in a tax-advantaged manner, and the division of retirement benefits.

Although divorce attorneys will have a basic understanding of the tax and benefits issues they come across on a daily basis, a good financial advisor will have a much firmer understanding of the intricacies involved with these particular subjects.

However, for a large majority of people going through divorce, the financial advisor is absent from the conversation with their attorney and the process of reviewing crucial financial documents. This can result in tens — or even hundreds — of thousands of dollars in missed opportunities. 

A common example may be the use of IRC 72(t)(2), which provides for a waiver of the 10 percent early withdrawal penalty on monies a former spouse receives via QDRO. Proper divorce planning may include utilizing this code section where parties are intent on using retirement monies to pay down their debt.

Financial advisors need to realize when their clients are going through a divorce that they should be proactive in becoming a part of the process. More often than not, neither the divorce attorney nor the client is going to invite them into the process on their own, so it is up to the advisor to educate their clients on how they can help and save money.

The Need For Financial Expertise

The clientele of the average “good” divorce lawyer can be thought of as a bell curve:

On one extreme, you have the very wealthy (who likely routinely communicate with financial advisors), and on the other, you will have people in the lower threshold of the middle class. Meanwhile, the vast majority of the divorce attorney’s clientele will fall somewhere in between these limits.