The New Age of Divorce Financial Planning

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Divorce is a time of great emotion, transition, and planning.  Your client may be the initiator of the divorce or the party who is on the receiving end of notice – but either way, the financial union is soon to be over, and your client will need expert financial guidance.  Most likely, you will need to provide advice, either by outsourcing to an experienced divorce financial planner or by acquiring new skills yourself.

Divorce financial planning is an evolving niche practice in which financial advisors work with clients and allied divorce professionals before, during and after divorce.  A divorce financial planner is a fee-only practitioner who charges an hourly fee for unbiased and objective financial expertise.  Like a NAPFA-Registered Financial Advisor(TM), a divorce financial planner places the clients’ interests first and provides comprehensive financial planning that guides individuals to a reasonable, practical and workable outcome.  Combining a CFP(r) with additional certification, a Certified Divorce Financial Advisor ™ is trained specifically in the financial issues of divorce and has an interdisciplinary knowledge of practical standards and state divorce laws.

Divorce financial planning is similar to financial planning, but with the added challenges of highly charged emotional and unique divorce laws of the jurisdiction in which parties live.  A divorce financial planner works within a legal setting, as we supplement the efforts of the legal professional in litigation, mediation, or collaborative divorce.

Our skills might be called upon from the outset of the divorce process (or even in the preparation for a divorce), at any point during the process, or post-divorce to assist with implementing the terms of the agreement.  Therefore, it is important for the planner to define the scope of the engagement and the tasks to be performed, and to have all parties acknowledge and confirm that agreement.  (The tasks may change over time, as new needs arise.)

A divorce financial planner can help a client with these tasks as well as others:

  • Gathering, organizing, and preparing documentation of income, expenses, assets, and liabilities:
  • Preparing financial reports within the context of divorce laws specific to a state;
  • Providing ongoing financial education, guidance, and analysis throughout the divorce process;
  • Making and explaining projections for the long-term impact of financial decisions and related tax implications; and
  • Assisting the client with post-divorce asset transfers, estate planning, and development of the long-term financial planning goals.

In a divorce, each party experiences a significant shift in their financial situation.

Without assistance, the changes that occur can greatly affect a client’s financial well-being. That’s why a divorce financial planner will help a client answer questions such as:

  • How much house can I afford?
  • How much life insurance do I need?
  • How do I prioritize which debts to pay first?
  • How do I protect my credit rating from my spouse’s negative actions?
  • Is the spouse’s share of a pension limited to the amount of earnings during the marriage only, or will it be increased by work after the divorce?
  • What are the guidelines for dividing assets during a divorce?
  • What does it mean to hide assets, and how do we find the assets?
  • How much may “fault” for the divorce influence a financial settlement?
  • What are the tax implications of child support, alimony, or unallocated support?
  • How do I plan for the unexpected? How do I plan for my future?
  • What are the financial priorities post-divorce? Is there a checklist of common tasks?

A divorce financial planner is the point person for pulling all of the historic information together, as well as for making specific financial recommendations that enable an individual to move forward post-divorce with a sense of confidence and security.  Ultimately, a divorce financial planner can educate clients, manage their financial expectations, ensure they make well-informed decisions, give peace of mind that the settlement is practical, and increase the clients’ satisfaction with legal process.

ASSN. of Divorce Financial Professionals Host Conference in September: Discount for NAPFA Members:

Obtaining the skills to be an effective divorce financial planner can require specialized training, continuing education, knowledge on how to use specialized software, and pertinent credentials and designations. These have been defined by the Association of Divorce Financial Planners (ADFP) for those aspiring to do this work in any legal setting.  The mission of the ADFP (www.divorceandfinance.org) is to heighten awareness of the benefits of divorce financial planning so that it becomes an integral part of the divorce process and to establish protocols and standards for divorce financial planners.

To learn more about divorce financial planning, attend the 10th Annual Conference of the ADFP on September 21-22 at the Doral Arrowwood resort in Ryebrook, NY. NAPFA members will be offered the ADFP membership rate for conference registration.

Mediation in Divorce on the Rise

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More couples prefer to divide their assets themselves rather than pay for a long legal battle.

By David Migoya The Denver Post

Kay Gilbert works at home as her 4-year-old yellow Labrador retriever, Hefton, looks on recently. Gilbert and her husband chose mediation to divide their property when their marriage ended. Helen H. Richardson, The Denver Post

Keeping it on an even keel was about all Kay Gilbert hoped for when she saw her 30-year marriage unraveling.

The consultant to budding nonprofits surmised that a protracted legal battle before a District Court judge would dissipate the resources and assets that she and her husband had acquired through the years.

“We just didn’t want to spend more than what was necessary and go before a judge to take our chances,” Gilbert said. “We’d heard of mediation and decided it was the best plan to try. You have to get through the blood-letting, to learn how to separate anger and reality and keep it focused on fairness.”

Gilbert is part of a growing trend in which splitting couples, still smarting from the shock of divorce and the toll of a slumping economy, are choosing to handle their own division of property.

In Colorado, couples filed separation agreements — generally, though not always, a precursor to final settlement decrees — in 72 percent of divorces last year, up from 60 percent in 2007, according to the Colorado Judicial Branch. The number of divorce cases filed rose from 2007 to 2010, then dropped slightly last year.

Gilbert said the couple spent extra time with a financial planner whose expertise was in divorce. She had heard too many horror stories from friends and acquaintances who had taken a divorce route directly through a judge.

“Among our friends, we were the ones not yet divorced,” said Gilbert, musing that her social network’s pains were her education. The final agreement needs a judge’s sign-off, which is still months away, she said, but is expected to happen without pause.

Too often, say those who work with divorcing couples, acrimony and emotional pain get in the way of clear thinking, leaving a judge to determine how assets are ultimately divided. The split is not always made in a way that both sides feel is fair.

“I’m certainly seeing couples not staying together because the financial situation is so bad; I’m busier than ever,” said Natalie Nelson, whose Denver business as a certified divorce financial analyst helps couples manage the distribution of assets, both in hand and to come.

A mortgage mess that put one in five Colorado homeowners under water — owing more than their property is worth — only served to heighten anxiety.

“Three years ago, you heard a lot of folks having a hard time grasping what was going on financially, having difficulty integrating their financial situations into any discussion of divorce,” Nelson said. “Now they say, with their tail between their legs, how they tried to pay off their debt before coming in for help. They’re in a very different place.”

Though a downward trend in divorce suggests couples are staying married longer, the reality is that many chose to hold on through the tough economy merely because they couldn’t fathom a financial beating with so little to show in the first place.

“When either side refuses to mediate or it’s unsuccessful, the judge always decides. We’re certainly seeing more people who won’t roll the dice in front of a judge, especially since they’re hurting financially already,” family lawyer Richard Harris said. “Whether it’s the 401(k), an underwater house, a pension, the kids’ college, custody and visitation, it’s 1,000 percent better to work it out without a judge.”

Though no hard numbers exist as to how often divorcing couples hammer out their own final settlements, Colorado Judicial Branch statistics seem to indicate more are, at the minimum, cooperating with each other.

Another item not tracked by court statistics are post-nuptial contracts, which are delicately balanced on the premise that the couple had no intent of splitting when they were drafted.

“Interestingly, a post-nuptial agreement by law can’t be made in contemplation of a divorce,” Harris said. “It’s not intended as divorce planning.”

As much sense as it might be to have one, especially in a day when many couples are in second marriages and shared assets can criss-cross complex family trees that include stepchildren, asking for a post-nuptial agreement still gives the wrong signal, experts say.

“It’s a great tool for estate planning, but the word itself, nine times of 10, the knee-jerk reaction is that it means there’s divorce in the air,” said Lili Vasilef, president of the International Association of Divorce Financial Planners.

“The trends in divorce are that more individuals are seeking to craft their own settlement agreements through mediation and collaborative divorce,” Vasilef said. “When the economy tanked, so many Wall Street types were tossing in the towel, too happy to get divorced because there wasn’t anything left to divide or negotiate. That’s different today.”

That’s precisely how it was seen by 52-year-old Simon, a Lakewood computer professional who asked that his last name not be used to protect his children’s privacy. He had a successful career in Los Angeles that tanked with the economy, taking his marriage with it.

“I held on for about three years, watching as we suffered through unemployment, went through minor savings, a car and a house,” Simon said of his 28-year marriage. “There really wasn’t a lot left to parcel out when it was basically over.”

Once Simon landed a job and the fiscal future looked more upbeat, he and his wife agreed to divorce. A long court fight wasn’t anything either wanted to face.

“Not only does it drag out and cost so much, there’s no point in getting stuck on stupid sentimental and emotional stuff,” he said.

Negotiating their own division of assets “wasn’t a cakewalk,” Simon said.

“It was devastating,” he said. “But the other side of the coin wasn’t appealing either.”

David Migoya: 303-954-1506, dmigoya@denverpost.com, twitter.com/DavidMigoya

Read more: Mediation in divorce on the rise – The Denver Post http://www.denverpost.com/business/ci_19797362#ixzz1kUK3kJWD
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Divorce Across Borders

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Article written by Lili Vasileff for Financial Planning Association

Given the mobility enjoyed by individuals today, divorce across borders is becoming increasingly prevalent. It is also one of the most complicated areas of family law. If you live or move overseas, the challenges you face are many and varied. If things get to the breaking point in your marriage, contemplating how a divorce works in terms of legalities and finances can simply seem like another impossible hurdle to overcome. How does a foreign family law system work?

“Divorce shopping” is a relatively new term to many and rarely will apply if you live in the US. However, the opposite applies if you reside abroad. Divorce shopping relates to when a divorcing couple researches where they might get the best deal before starting proceedings. This means that many countries “lack” harmony in their divorce laws. Some legal systems are not as accommodating and anomalies show distinct bias to one party or another.

“For example, barely half of the European Union member states (EU) honor prenuptial agreements. There is no maintenance for women in Denmark and Sweden. England provides for easier divorce than almost all other European countries. And some countries, such as France, will apply the laws of the other member states – in addition to their own if needed.”1 Malta does not even recognize divorce, only an annulment. In Latin American countries and developing countries, you find fewer support systems for divorce: mutual consent is often required. In Mexico, the laws of divorce and family relations are embedded in civil codes and each of the 31 states and Mexico City has its own laws stipulating the requirements and procedures for obtaining a divorce. Each Mexican state specifies grounds for a judicial or administrative filing for divorce (just recently expanded for domestic violence, incompatibility, separation). Columbia has become famous for quickie divorces due to climate of extreme violence. Chile did not even allow for divorce until 2004 where if you had a failing marriage, you had to resort to subterfuge to gain annulment. Jurisdiction is the critical element governing conflict of laws.

Jurisdiction

In the US, each state has its own divorce laws. To file for divorce in any state, you must meet the residency requirement. For individuals living overseas, however, where to file is much more complicated and requires professional legal counsel. The jurisdiction can make a huge difference to the rulings that will determine the future of you and your whole family. The worst case scenario is that you and your spouse fight it out in many jurisdictions at the same time, leading to prolonged uncertainty and steep legal bills.

In early October 2011, the European Union approved new rules for cross border divorces in an effort to streamline mixed nationality divorces, reduce legal fees, and discourage “divorce shopping.” Fourteen countries agreed to the rules. Thus, if you are living in Europe or another country, it makes sense to analyze rules for filing for divorce.

These rules apply to:

Couples not living in their country of origin.
Couples living in two different countries.
Couples not sharing the same nationality.

What are the new rules?

If the couple agrees, they can elect which country’s legislation to apply, as long as they have close connection to the country in question.
If the couple does not agree, the legislation of the country where they normally live (or last in which they lived together) will be applied.
If this is not possible, the law of their country of origin, and if this is not shared, the law of the country where the divorce is filed, will be applied.

“In the USA, courts in many states (for example New York) specifically accept international divorces. Courts in most others accept them on a case-by-case basis under the principle of comity.”2 In law, comity specifically refers to legal reciprocity — the principle that one jurisdiction will extend certain courtesies to other nations (or other jurisdictions within the same nation), particularly by recognizing the validity and effect of their executive, legislative, and judicial acts.3

“The Social Security Administration and the Veterans Administration are departments that specifically accept and recognize international divorces. The State Department authorizes and requires US consulates abroad to legalize foreign divorce decrees by granting ‘full faith and credit’ to the signatures of foreign courts. However, in some countries (such as very religious countries) divorce decrees may not be recognized”4 – and, expatriates have no access to the local courts. Determine if the courts in your target jurisdiction will accept the anticipated divorce case, including all financial and child custody issues. What will you need to accomplish in order to satisfy the conditions? What will you need to prove in order to be entitled to a divorce?

Children

US relations with many countries are governed by a number of treaties, both multilateral and bilateral. The Secretary of State declares specific foreign countries to be reciprocating countries for the purpose of enforcement of family support obligations. The US and reciprocating countries establish procedures that are in substantial conformity with statutory standards and cover enforcement of child support orders, paternity testing, cost-free legal services, etc. For example, if you owe more than $2,500 in child support, you are not eligible for a US Passport.

If a child is wrongfully removed from, or retained in the US, recovery of the child is processed legally under the Hague Abduction Convention. Under the Convention, neither citizenship nor immigration is considered when assisting families. The US finds international parental child abduction to be a Federal crime. It is important to recognize that in the US state law recognizes that married parents share equal (or joint) custody of their children. Unless there is a court order or written, enforceable agreement elevating one parent’s rights, you and your ex-spouse share equal rights to make decisions for your children, including where your child resides and how he or she is raised.

Assets and Liabilities

Different countries have very different financial outcomes from divorce. If you and your spouse have assets in different countries, you may have to rely on your spouse’s honest disclosures or upon international treaties that allow for cross border investigations, searches, enforcement, and reciprocity.

The first step is to determine jurisdiction. Major areas of disparity in treatment of support and division of assets exist between countries and even between different states in the US. If your spouse and his/her family moves money internationally, your best offense is to know where your spouse’s assets may be located and how they are titled. You must analyze the targeted jurisdiction strategically.

You must know the following:

1. The nature of the assets that are included in the target jurisdiction.
2. Are your family’s assets held in joint names with others?
3. Are there beneficial interests?
4. Are there trusts involved?
– Are there other assets: Gifts, inheritances, separate, premarital assets?
– The method of asset division that is used by courts in the target jurisdiction.
– The relevance of the conduct of the parties (fault, abuse, violence) in the target jurisdiction.
– The philosophy of the courts in the target jurisdiction.
– The Support Factors and Awards
5. For what period of time might such payments be required?
6. What is the likely amount of the award?
– Does the jurisdiction require a “clean break” whereby the spouse must receive a large lump-sum sufficient to generate the income needed to meet lifetime maintenance requirements?
7. Enforceability issues.
– Are there any specific factors which make it particularly easy or difficult to enforce an award in the target jurisdiction?
8. Other Important Factors
– Is the process easy?
– Is it the most convenient place?
– What venue recognizes your pre-nuptial agreements or other orders?
– What venue favors you and your children — custody?

There are many complex legal and financial issues to consider concerning divorce across borders. For example: where individuals live and work, an understanding of regulations on divorce, cross border divorce proceedings, recognition of court orders among reciprocating countries, etc. Thus, it is important to seek advice from an expert in international divorces.

Sources:

1 Prospect Magazine UK: “When Love and Culture Clash”, Janine Di Giovanni, December 15, 2010
2 International Divorce in the Caribbean, By Joe B. Gonzalez, April 27, 2009, http://ezinearticles.com/?International-Divorce-in-the-Caribbean&id=2274625 and http://www.vipdivorce.com/faq.php provided by 2006 – 2009 Expat Wealth, a division of Noticias Globales S.A
3 Wikipedia, http://en.wikipedia.org/wiki/Comity
4 http://www.vipdivorce.com/faq.php

FPA Member Lili A. Vasileff, CFP™, CDFA™, is President of the international Association of Divorce Financial Planners.