While the very wealthy usually will have the sophistication to involve financial professionals with the divorce from the start, and the less wealthy may not have a need for financial experts, the clients who fall in this yawning gap could benefit from the expertise of a financial advisor, yet that presence often does not exist.

There are several possible explanations for this absence. Through a misguided halo effect, clients often assume that the divorce attorney is fully capable of handling every financial and legal aspect of the divorce. While an attorney may feel comfortable assuming that role, divorce attorneys are not financial planners. They may not fully understand the nuances of the more complex financial aspects, which can have a major impact on the outcome of their divorce. 

Take the example of IRAs. If each party has an IRA worth $100,000, are the two IRAs equal in value? Many attorneys likely would say yes, without the basic understanding that one IRA may be a traditional IRA and the other a ROTH.

Or take the example of two investment accounts that have the same balance on paper, but the disparity in the tax basis may be such that an “equal” division is anything but. By not consulting with a financial planner, one party may leave the marriage with a much larger built-in tax liability.

Additionally, attorneys are typically juggling a number of cases in various stages at once, making it easy for the financial aspects to be overlooked. Finally, whether conscious or unconscious, attorneys are aware that any additional experts brought on board will be competing with the same limited pot of financial resources as the attorney.

Since most clients going through divorce struggle with liquidity, an attorney may or may not be willing to recommend bringing someone else on board if they feel they have a grasp on the situation (despite the fact that they often do not have the expertise to handle everything). How Advisors Can Help

Having someone with a strong understanding of tax and benefits laws, including those addressed in qualified domestic relations orders (QDROs), is a major benefit for anyone going through divorce. Though the average “good” divorce attorney will be able to address the surface issues they face in day-to-day practice, such as the basic taxability of alimony or dependency deductions, they likely lack the expertise to resolve more complex aspects of a divorce settlement.

For example, take a pension plan. Many attorneys will include language such as:  “The former spouse is awarded 50 percent of the marital portion of the pension.” For that former spouse, the issue of survivor benefits may be critical to protect his or her award. If the pension calculates the retirement annuity upon the life of the employee only, then the former spouse will receive nothing upon the employee’s death without the added protection of a surviving spouse benefit or annuity. 
 
As a financial advisor, when you have a client going through divorce, it is best to err on the side of action vs. inaction, as it will usually be on the advisor to initiate the first move by demonstrating the value they can bring to the table.

Explain to the client that you have a much better understanding of these complex issues that must be resolved during the process, and that it would be very beneficial for them to approve communication between you and the attorney.

Whether through occasional phone conversations or asking to be copied on emails that contain financial settlement or QDRO details, a financial advisor can play a key role in ensuring the best outcome without being any sort of hassle.

In fact, most attorneys should welcome your input and you should be skeptical of any who seem offended by you adding your two cents.
Something to remember, however, is that there will be a meter running and your client will be charged any time you engage with the attorney. Try to keep any communication succinct and to the point, as you are fully aware the financial stress anyone going through divorce is suffering.