While marriage may be all about love, it has been said that divorce is all about money. I'm not sure that's always true, but what I do know is that during a divorce, there is an overwhelming amount of personal and financial decisions at a time when most people are already feeling depleted and overwhelmed.
My role as a CDFA® in the collaborative divorce process (as the "Financial Neutral") is to help both the clients and attorneys understand how the financial decisions made today will impact the clients financial future. The financial neutral identifies the short-term and long-term effects of dividing property, considers tax implications of the settlement decisions and assists the clients with all things financial. I'm often asked to help determine if one spouse can afford the marital home after the divorce and if not, to help bring a creative approach to outline additional options.
There are several examples of how involving a financial professional in the collaborative process benefits the couple financially. Initially, it’s in the data gathering part of the process. Once the collaborative process has been chosen, the attorneys direct the clients to meet with the financial professional. At that time, we're working together to gather the financial information, discuss the client's objectives and priorities and explain the financial options. The financial reports that are generated from this meeting are in the format the attorneys are comfortable with and remove the repetition of both clients gathering the same financial information for each attorney. It is my experience that the duplication of effort that is removed from the collaborative process is a significant cost savings. Once we have comprehensive and accurate financial information, our team meeting with the attorneys is scheduled.
Divorce financial planning increases the accuracy of financial information so that both parties achieve workable settlements more quickly and accept realistic lifestyle changes when necessary. Settlements achieved with the help of a financial planner are less prone to problems or unpleasant financial surprises post-divorce. This example has an unfortunate ending and could have been avoided by involving a financial neutral during the divorce to arrive at a settlement that is fully understood by all involved.
Here's a costly example of when a financial professional is not considered until after the divorce is final:
After his divorce, Tom went to a financial advisor to determine how to best invest his assets. During the planning session, it became apparent that during his marriage his wife had done all of the investing for the couple.
At the time of their divorce she said, “Let’s just split everything 50/50. You take this half of the assets and I will take that half. Is that ok?” Tom answered, “Well, I guess that sounds pretty fair. That’s ok with me.”
Unfortunately, there was something he neither knew nor understood. He didn’t realize that Tom would have to pay taxes on his half of the assets when he tried to access them. His ex-wife, on the other hand, could access her half of the assets tax-free. His 50/50 split cost him an additional $18,000 in taxes. Had the couple involved a CDFA® professional before the divorce was finalized, he would have been in a better position to ask for a more equitable settlement.
This example has an unfortunate ending and could have been avoided by involving a financial neutral during the divorce to arrive at a settlement that is fully understood by all involved.
My clients often hear me say; "It's my job to save your family money during this process." There are tax planning strategies that we can use whether the family is intact or restructuring due to divorce. When the income that sustained one home now needs to provide for two separate households - there is no doubt that resources are stretched, and people really feel the effects.
The collaborative process allows each of the professionals; Attorney, Mental Health Coach and Financial Neutral, to act in their most specialized role. I believe so strongly in this process and that the result is a significantly better settlement for the family.
Kristina George is a CPA, Certified Financial Planner ® and a Certified Divorce Financial Analyst. ® She currently sits on the Board of Directors of the New Hampshire Collaborative Law Alliance and is a member of the International Academy of Collaborative Professionals. She has participated in collaborative practice since 2012.
Kristina has provided tax, financial planning, and investment advice to individuals and business owners for over 24 years. Additionally, Kristina works extensively with lawyers, mediators and clients to address financial issues that arise in the divorce process. Kristina can be found at Northstar Financial Planning Inc. in Windham, NH.