(September 2008)

In 1997, one of Akeela Davis’s clients was going through a bitter divorce after her husband of 30 years left her for a younger woman.

“I just could not believe what was happening to her,” says Davis, a registered financial planner, certified financial planner and financial divorce specialist with TD Waterhouse Private Investment Advice in Vancouver.

The client’s wily spouse retired early to avoid paying support and had protected a sizable inheritance by never using any part of it for his family.

Around the same time, other divorced clients were seeking Davis’s advice about their separation agreements; they had no clue how the agreements had been negotiated. “They were coming to me five years after their divorces,” she says. “I could see the impact it had had on them; they were in such poor situations.”

Thus was born Davis’s passion for helping clients educate and empower themselves about divorce.

There is certainly a role for advisors who know about the separation and divorce process — and there is no shortage of clients. Statistics Canada predicts that 38% of Canadian couples will split before their 30th anniversary. And many clients will find that they need more than legal advice when their marriages fall apart — they will also need financial advice. As an advisor, you can help clients make the right financial decisions at this difficult time if you have a thorough knowledge of the process from a financial planning perspective.

More than a decade later, Davis — who received her FDS designation in 2000 from the Sudbury, Ont.-based Academy of Financial Divorce Specialists (www.afds.ca), which she co-founded — says fee-for-service divorce work has become one of the most rewarding aspects of her job. “With financial planning, what we do is long term; it may take years for a client’s goals to be reached,” says Davis. “Divorce work is more immediately gratifying.”

The other major divorce designation for financial advisors, the certified divorce financial analyst, is administered by the Michigan-based Institute for Divorce Financial Analysts (www.institutedfa.com). Both designations are awarded through a combination of course work and examinations. However, obtaining a designation is only the starting point.

Davis is quick to note that her expertise in the area didn’t come overnight. A divorce designation is essential, she says, but expertise in providing advice to clients going though divorce comes from a combination of formal training and experience.

“A designation gives you focus, ongoing education and a degree of credibility,” says Eva Sachs, a CDFA and founder of Women in Divorce Financial in Toronto. “But if you want to get into this field, you have to commit to it in a big way. You gain so much, in terms of experience, with every single case that you do.”

Doug Lamb would second that. A CFP with Spera Financial Inc., an affiliate of Dundee Private Investors Inc. in Toronto, Lamb has built a successful divorce-related financial planning practice without obtaining either divorce-related designation; experience has been his teacher. But either way, an advisor who specializes in divorce can save clients thousands of dollars down the line.

“There are huge savings,” says Lamb. Savings can come from helping clients choose an appropriate method of negotiating the separation agreement, finding a lawyer best suited to their case, properly gathering all of the necessary paperwork or translating the divorce settlement into a realistic financial plan.

However, the one thing you can never offer is advice that might be construed as legal advice.

“When a divorce client comes to me, the very first piece of paper I give to them is a disclosure that says I do not give legal advice,” says Davis. “I can show you the outcome of your choices, but I cannot tell you what to do.” She repeats that mantra at every client meeting.



> Walk Clients Through Their Options.

While a lawyer may seem to be the first call a client should make when a relationship breaks down, it is, from a financial standpoint, more valuable for clients to get in touch with a financial advisor who specializes in divorce work.

“When someone announces they’re getting a divorce, they tend to ask their friends about their divorce lawyers,” says Debbie Hartzman, a CDFA with Professional Investments in Kingston, Ont. “Then they randomly choose one and walk into their office. That is really not the right way to do the research.”

@page_break@Instead, Hartzman advises the recently separated to familiarize themselves with the various methods of settling a divorce, then consult a financial advisor who specializes in divorce.

When first meeting with a divorcing client or couple, Hartzman inquires as to the circumstances of the split. “I ask them about the type of assets they’re dealing with and whether it’s an amicable divorce,” she says. “I also try to determine whether there’s any sort of power imbalance between spouses.”

Is one spouse significantly more financially savvy than the other? Is one spouse pushing to mediate because he or she can bully the other spouse into acceptance? “It is our job.” she says, “to make sure that the process is fair and even, from all aspects.”

Next, Hartzman talks the client through the various methods of negotiating a separation agreement and outlines the financial ramifications of the divorce, including equalization of property, and spousal and child support, as well as custody arrangements.

“I want my clients to be aware of what their options are,” she says, “and to think about which process might work best for them.”



> Separation Agreement.

The three most common means of hammering out a separation agreement are litigation, mediation and collaboration. Litigation is the most costly — it can set each party back as much as $40,000 — while mediation and collaboration have much lower price points. But there is no “one size fits all” solution.

Litigation is the traditional method of divorce. It requires both parties to hire a lawyer to represent them in court, in which a judge will decide how to resolve the couple’s financial issues and determine who gets custody of any children. It’s often the best method in contentious divorces and situations of abuse.

“If one party can’t stand up for him- or herself,” says Davis, “the couple usually need to take the traditional method.”

In mediation, a neutral third party, often a family lawyer, who cannot give either spouse legal advice, works with the divorcing couple to resolve all the issues related to the dissolution of the marriage. After a resolution has been reached, both spouses take the terms of this agreement to their individual lawyers for independent legal counsel.

“Mediators don’t give advice,” says Lamb. “They just help to facilitate a decision.”

But one spouse’s lawyer can question what has been decided in mediation, sending both parties back to the table.

“Couples might think they’re saving a bunch of money — and it often works out just fine,” says Lamb. “But, occasionally, the agreement they reach may not pass the acid test of their lawyers.”

Mediation works best when both parties are on somewhat equal financial footing and are able to work together without acrimony. “If two people are fighting for control,” says Davis, “telling them to go to a mediator isn’t going to work.”

Many experts consider collaboration to be the most humane method of ending a marriage. “In collaboration,” says Davis, “each party has his or her own lawyer [who must be trained in the collaborative practice] present at every meeting, to counsel them on the legal ramifications of the decisions they’re making in regard to the separation agreement.”

Additional professionals — parenting experts, divorce coaches, mental health workers, financial advisors — might also be called in to assist in the process.

With this team approach to negotiating a separation agreement, each party commits to working together respectfully and making the interests of any children a top priority. Both parties also agree not to pursue litigation. If the case does go to litigation, new legal representation must be sought.

“Whereas the traditional litigation method is usually win/lose,” says Davis, “collaboration is a situation in which the family, not the individual, wins.”

Advisors often work as neutral financial experts with both spouses in mediation and collaboration. An advisor may also work with one spouse on an individual basis in the case of litigation, or outside of the mediation or collaborative frameworks.

After the client — and the spouse — has determined which method best suits their situation, you can help them select an appropriate professional to take their case. “Choosing a lawyer is so important,” says Davis. She provides clients with a list of lawyers to interview based on the process the couple have chosen to undertake.

“There are some lawyers who work best as litigators, and others who can’t stand the court system and would rather work in alternative dispute resolution [which includes mediation and collaboration],” says Hartzman. “And then there are lawyers who will take any case and say they are all things to all people. That’s where you run into problems.”

Negotiating a separation agreement via the collaborative method with a lawyer who doesn’t completely embrace the concept can be difficult and cause the process to break down. “It’s very expensive to start out with one lawyer,” Davis cautions, “find out you can’t work with that lawyer and then have to start over with someone else.”



> Gathering Financial Data.

After a client has chosen appropriate legal representation, or if he or she has signed on with a lawyer before seeking your services, you can play an important role in helping your client collect all of the documentation required for full financial disclosure. This can save time and costly lawyer calls.

“Financial advisors who specialize in divorce are very helpful in gathering the inventory of the marital estate,” says Janis Pritchard, a collaborative lawyer with Pritchard & Co. LLP in Medicine Hat, Alta., “what the clients own and owe, and what incomes there are.”

All liabilities and assets must be valued as of the date of separation, which can vary. The separation date can be the date one spouse moved out of the house or the date of the settlement agreement. That date is decided upon by the spouses; if no consensus on the date can be reached, a judge will determine one.

Most advisors specializing in divorce provide clients with a checklist of necessary documentation required from both spouses, which includes:

> income tax statements

> bank, credit card and line-of-credit statements

> property tax statements

> valuations of the couple’s home, as well as valuations of any vacation properties and — depending on the province — businesses owned by either spouse

> pension valuations.

An advisor who familiarizes him- or herself with the marriage’s full financial picture may also help clients win larger settlements. While preparing one client’s financial disclosure, Sachs discovered that the client’s soon-to-be ex-spouse had received significantly higher annual bonuses during the final two years of their marriage, which prompted a recalculation of her spousal support. “She was very happy to pay my bill,” she says. “This also made me realize that there really is a role for the financial advisor to play in the divorce process.”

Calculating expenditures is another important part of the financial disclosure. “The biggest challenge for most people,” says Sachs, “is gathering information on their expenses.”



> Hold Off On Major Changes.

At this juncture, clients might be keen to make changes to their wills, beneficiaries and powers of attorney. Not so fast, says Hartzman: “The advisor must tell the client he or she needs the advice of a lawyer before making any changes.”

The same goes for clients who request these changes without indicating any marital discord. “If a client calls in to change his or her beneficiary and you know the client is married, that’s a pretty big red flag,” says Hartzman. “I’d start asking some questions. And if I found out the marriage was in trouble, I would suggest the client consult a lawyer to discuss what he or she should or shouldn’t do before initiating the separation process.”

Ideally, clients should also avoid making any changes to their financial portfolios at this time.

“The date of separation is the D-Day for asset division,” says Linda Cartier, president of Financial Decisions Inc. in Sudbury and co-founder, with Davis, of the Academy of Financial Divorce Specialists. “Messing with the investments after that date isn’t a smart thing to do, because you’re still going to be on the hook for whatever the investments were worth on the date of separation.”

CDFA and FDS advisors aren’t permitted to manage a clients’ investments while also working on their divorce. “Potentially, if you wound up in court,” says Cartier, “the lawyers of the opposition would ask if you’re investing the client’s money. It’s not enough to discredit you completely, but it certainly puts a cloud over things.”

As a result, Sachs has created two separate practices, one for financial planning and the other for her divorce work. “This way,” she says, “there is no conflict of interest or confusion in the eyes of my clients.”

Advisors not interested in specializing in divorce should consider striking up a relationship with someone who has, Sachs suggests: “There’s little risk of losing the client because, as CDFAs, we can’t deal with products and services. We also often uncover a lot of opportunities for the financial advisor, in terms of products and services.”



> Giving Clients A Reality Check.

Couples often have an unrealistic view of what their finances will look like after the divorce.

“I’ve had clients who have argued and argued over who gets the time-share,” says Hartzman. “I’ve had to say to them: ‘Why are you worrying about that, when you’re not even going to be able to afford to fly there?’ Managing expectations is one of the key things an advisor can do to help a divorcing client.”

Creating projections for various outcomes of the divorce can give clients a much needed dose of reality and a better shot at financial security.

“If you’re not looking at what could happen to the client down the road, it could be disastrous,” says Cartier. “We all hear horror stories of people getting the house and then not being able to afford the bills and going bankrupt.”

Projections can also be valuable to lawyers. Adds Davis: “I once had a client who came to me with her husband’s settlement offer, and I modelled the scenario for her and then met with her and her lawyer to explain it all. He was ecstatic and called the other lawyers into his office to take a look at my work.” As a result, Davis received several referrals.

“Lawyers are beginning to see that this type of work is not what they do best,” adds Cartier. They’re excited to have someone with our background to hand it off to.”

Pritchard concurs, maintaining that projections — which collaborative professionals often refer to as “evaluations” — are among the most important services a financial advisor specializing in divorce can offer.



> When The Ink Is Dry.

There’s still work to be done once the separation agreement is signed.

“The best-quality divorce,” says Pritchard, “is one that has a financial plan that works for the children and both of the parents.”

However, while you may keep working with clients after mediation or litigation, that’s not the case with the collaborative process, says Cartier: “We’re not permitted to work with those clients again. If the collaborative team has to come together down the road to deal with another issue, the International Academy of Collaborative Professionals feels that we would not be as objective.” Cartier notes this rule is frequently challenged, but hasn’t changed.

Davis finds divorce work particularly satisfying. “I recently got a huge bouquet of flowers from one of my clients whose divorce had just settled,” she recalls. “She said she couldn’t have done it without me — and that’s really the best part of my job.” IE

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