What you donÃt know can hurt your clientsóand your practice.
Divorce is not what it used to be, and financial advisors should be aware of how attitudes and laws have changed.
Today, more women come to divorce lawyers for some of the same reasons men have historically, says Donald C. Schiller, a main partner with Schiller, DuCanto and Fleck, Chicago, one of the nation's largest matrimonial law firms. "Their husbands haven't grown with them," he says. "They make more money than their husbands. They want to trade in one model for another."
Spouses wishing to avoid paying alimony, he says, would do best to divorce in the historically "anti-alimony" states of Indiana or Texas. However, experts say that as divorce generally has become easier nationwide the clear trend among state laws is to require greater disclosure of finances earlier in the relationship and fairer dealing about money between spouses. In fact, the American Law Institute in Philadelphia now suggests that a prenuptial agreement be drawn up at least one month before the wedding.
"In light of the fact that the divorce rate is more than 50%, it might be prudent for a financial advisor to at least advise people what the consequences could be if they were confronted with a divorce," suggests John D. Gregory, professor of law at Hofstra University in Hempstead, N.Y. "The problem here is that you don't ordinarily think about what's going to happen when a marriage breaks up if things are going swimmingly."
If you fail to be equally upfront with both spouses about their finances from the onset, you could face trouble down the road from your married clients or clients who might become husband and wife, attorneys warn.
Sandra J. Morris, an attorney in San Diego and president of the American Academy of Matrimonial Lawyers in Chicago, says she sees the potential for possible conspiracy charges to be levied against a financial advisor some day if a marriage breaks up. "There's a trend to imposing a fiduciary obligation on both parties (in a marriage) to disclose fully all income, assets and debt to the other party," Morris says. "Financial advisors need to be careful. They could be considered part of a conspiracy if they insist on not disclosing assets."
Morris advises that you learn the rules in your own jurisdiction. "Be aware of them so you can advise your clients to consider these things, or seek legal advice." There also is a move afoot in California to impose a fiduciary obligation even if a couple is not married. "The trend is toward imposing larger and larger responsibilities on each person to operate with the highest good faith and fair dealings-even if they don't love each other any more," Morris says.
Violet P. Woodhouse, certified family law specialist and financial planner in Newport Beach, Calif., says her concern is not about conspiracy charges but that careless financial advisors could find themselves in deep trouble in a very innocent situation-such as the death of one spouse in a very happy marriage. The problem, as she sees it, lies with an increasingly litigious society and fairly standard rules that fall under the jurisdiction of the NASD, Securities and Exchange Commission or state. Changes in fiduciary duties between spouses that have been evolving in California state law since 1992, she notes, have brought this issue to the forefront.
Typically, one spouse is more financially involved than the other, she explains. What happens if the financially involved spouse dies, and thesurviving spouse suddenly is saddled with reams of margin debt? It could be the financial advisor's head. Of course, these issues usually come up only when money is lost.
"I don't think a lot of people [advisors] are clear about who their client is," Woodhouse warns. "That is what needs to be clarified."