There’s no doubt financial advisors play an important role for families that are going through a separation. In fact, it is now common for family lawyers to suggest their clients work with a financial advisor during the legal process.
A lawyer may look to financial advisors to prepare statements of assets and liabilities, as well as to analyze any tax implications within the family law context. Advisors can also facilitate the financial disclosure process. The list of items required for this process could include supporting documents for income tax returns; bank statements; business income tax returns and business financial statements; mortgage statements and credit card statements. Usually, the advisor and the client work together to gather and provide the financial documents to the lawyer, who will then work with either the client or the advisor to fill in the gaps and convert the documents to a legal format.
The more financially savvy the client, the less involved an advisor will need to be. Advisors can also prepare financial plans showing the impact of the proposed division of assets, along with financial support scenarios.
I recently worked with a financial advisor who, having intimate knowledge of the parties’ income and their assets, created an easy-to-follow chart of the family’s assets and liabilities. The advisor was able to calculate the equal division of all of their assets and liabilities and achieved this division by identifying the account that was the easiest to transfer to the other spouse. The simplicity and clarity of his work made the process more efficient and less expensive for the client, saving approximately five to 10 hours’ worth of accounting and legal fees. Even better, the client gained a better understanding of their financial picture and what their retirement plans would look like after asset division.
A few reminders for advisors:
- A client’s risk tolerance may change after the separation.
- An advisor’s input does not replace independent legal advice.
- Each spouse should have their own lawyer.
The importance of collaboration
Families who go through a divorce may be vulnerable during this time. Adults can easily let their strong emotions, such as anger and vengeance, influence how they instruct their lawyers and what decisions they make. Advisors can play an important role in guiding clients to choose a healthier legal divorce process. Help clients choose lawyers who specialize in conflict resolution, rather than someone who may escalate the conflict.
In most cases, mediation and collaborative law offer more positive outcomes for divorcing couples and their families, given the additional training in negotiation and a preference, whenever possible, to keep cases out of court. No one wins when the conflict cannot be contained and is escalated to a court proceeding, where the entire file and all financial disclosure will be a matter of public record. This may be undesirable if there’s a business involved as, theoretically, competitors will be able to access the financial statements. And while the rule of law is the same whether a case is resolved through mediation or court, going to court is not only the most expensive route—it also the most emotionally depleting for clients.