As a wealth advisor for eight years, I have learned not to say, “I know how you feel,” when a soon-to-be divorced client comes through my door needing financial help. The reality is, I don’t always know how they feel or what they’re going through as a result of divorce or other traumatic life events. But I do know, through the haze of grief or anxiety, disoriented clients often make poor financial decisions resulting in significant asset losses. Often, it is difficult for clients to see that while they are closing the door on one phase of their lives, they are opening the door to another that may hold a range of new possibilities.
Closing Joint Accounts; Opening New Paths To Independence
While taking careful inventory of the state of their assets, I listen to their needs. For divorcing clients, the first priority is closing all joint financial accounts, a particularly important step if their spouse is prone to asserting control over money matters. Over the years, I have witnessed the importance of separating these accounts. Recently, a client stated her soon-to-be ex-husband was insisting on remaining personally and financially involved in her assets as a way to wield influence over her spending and investment decisions. We worked to ensure she emerged entirely financially independent, and her husband retained no viewing access into her account or otherwise exercised any control over her assets.
Additionally, we structured a portfolio and cash flow that worked for her. We updated her trust and estate plans based on her goals and desires, and those of her daughter. In addition to other steps, we also refinanced her mortgage, updated and properly titled her insurance documents, created a new estate plan, began executing Roth IRA conversions, and ensured her new trust was listed on the deed to her home.
During a divorce, it is critical to consult with the divorce attorney to structure the terms of the settlement. Clients can incur sizable tax liabilities when they make the mistake of overlooking the tax status of assets included in the agreement. Through my client’s attorney, we ensured the amount of assets transferred, net of taxes, was taken into consideration and that the spousal support was not taxable to her.
In some cases, divorcing clients, who were not meaningfully involved in asset decisions during their marriage, may not feel comfortable designating a financial power of attorney. In this recent case, we sought a professional fiduciary who was focused on executing clients’ wishes rather than acquiring assets. We secured someone who was less expensive than a trust attorney to serve that purpose.
Clients who seek out our services are sometimes emerging from an unsavory prior advisory relationship. Part of helping them through a difficult transition, particularly with a divorce, is understanding the dynamics that defined that relationship and why it didn’t work.
Here, the divorcing client, whom I had advised, along with her husband, while at my previous firm, sought out my services. She had been excluded from account decisions at that firm since my departure. We began anew, reviewing aspects of the advisory and investment management process she was previously excluded from. This step also meant severing ties with her spouse’s representation, another necessity for anyone going through a divorce.
Understanding The Loss; Revealing New Horizons
We all know that clients are much more than compilations of assets. They are people who deal with major, often devastating, events that can cloud their judgment and alter their outlook on life. While some become entangled in contentious divorce proceedings, others endure the pain of losing a spouse. Some are simply heading into retirement after decades of demanding jobs and are reeling from a sense of loss of self-worth and financial security.