Though the U.S. divorce rate is down, it's still between 40% and 50%. How can advisors help clients prepare for and get through a break-up?
"The key is understanding this is a highly emotional issue. People are anxious," said Robert Karn, a certified financial planner and attorney at Farmington, Conn.-based Karn Couzens & Associates. "Realize they’re likely unhappy, and you’ve got to be careful with whatever you say."
The No. 1 no-no, perhaps, is blaming or bad mouthing the ex-spouse (or soon-to-be ex-spouse). "One of the dangers is the perception that you are taking sides," said Kristen Fricks-Roman, a senior vice president and family wealth advisor at Morgan Stanley Wealth Management, in Atlanta. "Sometimes one party is suspicious that the other is hiding assets, and financial advisors could get pulled into the quest to locate what one party might deem undisclosed."
But if both spouses are clients, how can the advisor avoid even the appearance of taking sides? "The key," she offered, "is to not be drawn into criticizing anyone, and keeping any conversations with each of them private."
Yet it's not always easy to keep the relationships as professional as you'd like. Fricks-Roman suggested encouraging the couple to "decide if they both want to continue a professional relationship with me -- and if not, [I'd] refer them to another qualified professional financial advisor."
Kim Nugent, a first vice president and wealth manager at Rochester, N.Y.-based Sage Rutty, noted that advising clients through a divorce can take a particular mentality, a skill set that isn't right for all advisors. For one thing, she said, it's time consuming. "Advisors must assess their own relationship with each individual. If the advisor does not know one or both spouses very well, and hasn’t already established a strong level of trust, it is probably wise to refer one of the spouses to another advisor. This is not the time to expect to develop trust," she said.
Trust requires a strong foundation. Beth Blecker, a registered financial consultant and CEO of Eastern Planning, in Rye Brook, N.Y., advised, "If you sense a divorce is coming, help clients do their homework -- i.e., understand their assets and liabilities. Be sure they have access to an emergency fund and are not forced to sell assets to meet expenses. It’s during a crisis when an advisor can earn her reputation."
Early on, there are steps advisors should take to prepare married clients for the possibility of divorce. "Educate them on basic property rights that one or both may be giving up in various scenarios," said Nugent. Depending on the relevant state laws, she said, "prenuptial agreements, and avoidance of comingling assets, might be discussed when there is a large difference in assets coming into a marriage."
Inheritance and beneficiaries might come into the equation, too. "I advise my clients to always keep beneficiaries and asset titling updated," said Terri Munro, a wealth advisor at BT Wealth Management, in Atlanta, and president of the Financial Planning Association of Georgia. "Have proactive conversations with your clients around their desires for estate planning, particularly if there are children from prior marriages."
Clients, she said, might not understand the consequences of transferring assets from individual to joint ownership. While it might sound romantic, it "gives the other spouse an ownership interest in the asset, which could likely be considered a marital asset should they divorce," said Munro. "Explain all the different ways that exist for a spouse to provide access to funds for the other spouse without giving up ownership, such as adding them as a beneficiary or [granting them] power of attorney on the account."