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.

Secrets and Lies

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Marital secrets, forged signatures and warring spouses – molehills, not Madoff, plague most financial advisors.

By Janice Fioravante
July 1, 2012

Financial planners are still trying to live down Bernie Madoff’s mayhem. FINRA may be named to regulate investment advisors. Most wealth managers, though, aren’t wrestling with Ponzi schemes or additional scrutiny. Advisors’ burdens often center on the deceptions, frauds and blunders wrought by their own clients.

Potential land mines can nestle in unexpected places: the seemingly stable marriage of longtime clients, a small inheritance or the tax returns of retirees.

The biggest troubles, many advisors say, arise from messy divorces. “There are times when one of the parties in a divorce will willingly divert assets, and that’s when I go into full gear,” says Lili Vasileff, founder and CEO of Divorce & Money Matters of Greenwich, Conn., an RIA firm that focuses on the financial ramifications of the demise of marriages.

Clients may try to deceive a spouse or advisor by making deceptive or fraudulent statements in property settlements, even though admissions made in such documents are signed under penalty of perjury. Sometimes documents are forged.

What can an advisor do to uncover falsehoods in a document? “The first thing is to get a full credit report,” Vasileff says. Such reports have helped her discover second mortgages and liens. Clients, she warns, may feign surprise, denying the signatures are theirs.

WAR OF THE CLIENTS

Sometimes it’s not fraud, but the tenor of relations that can make advisors’ lives agony. One of the toughest situations for any advisor is when married clients become enemies.

“In divorces, we work for both spouses,” explains David Hultstrom, president of Financial Architects in Woodstock, Ga., which has $30 million in assets under management. The firm’s standard contract asks the client to acknowledge that spouses are considered a single entity.

Any information provided by one partner must be shared with the other, and authorization by one partner is considered an agreement by both. “In a case where we think a spouse may be unaware of something that affects him, we will tell him about it,” Hultstrom says.

Ken Waltzer, president of Kenfield Capital Strategies in Los Angeles, says that individual assets are separate property. That knowledge helped him negotiate the split of an unmarried lesbian couple, exacerbated when one partner sued the other.

“Both remained clients, but when one wanted to know the assets of the other, I told her that I couldn’t divulge any information,” he says. “As a fiduciary, I cannot divulge one client’s information to another. Once the couple split, they were separate clients. This would be true even if they had been married.”

Divisions over inheritances also can make an advisor’s peaceful practice hell. The mother of one of Waltzer’s clients died, leaving the client with an inheritance he didn’t want his wife to know about. This can be common, the advisor says, especially in second marriages when one spouse wants to ensure that children from the first marriage inherit the money.

INHERITING TROUBLE

Inheritances can create nests for indiscretions, even fraud. “The complexities of the probate process and estate administration provide opportunities for fraud, and planners need to be especially vigilant,” says Thomas Tillery, vice president and co-founder of at Paraklete Financial in Kennesaw, Ga., a firm that advises other wealth managers, attorneys, CPAs and private banks.

In the process of gathering client data, Tillery says, he discovered a client was moving money into his personal account from a trust account. The client, an estate executor, thought he deserved to be compensated for his work. Tillery believed the client was acting fraudulently and terminated their relationship.

“The other inheritors needed to know what was happening,” Tillery says. “Thousands of dollars were being moved from the estate account and into a personal account. I couldn’t continue to work with the man,” he adds.

Tillery and other financial planners stress the importance of discovery. “The advisor has an obligation to learn as many facts as possible in order to make correct recommendations; otherwise, you could end up in litigation,” he says.

 

WHEN DILIGENCE IS DUE

David O’Brien, president of O’Brien Financial Planning in Midlothian, Va., says that planners ignore such due diligence at their peril. “If a prospective client can’t provide full financial information to a fiduciary planner, the RIA firm shouldn’t take the client on,” he says.

“We work in a transparent manner and must expect the same from our clients. I think the liability to us is too great to represent a client who may be holding back information,” he says.

Advisors can make mistakes in the early days of setting up an advising shop, when they are most eager to acquire clients, says J. David Lewis, president of Resource Advisory Services in Knoxville, Tenn., with $70million in assets under management. Early in his practice, Lewis says, he felt that two clients hadn’t been honest in their intentions.

“Twice, I had women start client relationships where their husbands were very unresponsive in providing information needed for financial planning,” he recalls. “I cobbled together as much as I could in creating net worth statements and reports. I was paid, but later, because of the ways these relationships evolved and ended, I believed, and still believe, these women’s unspoken agenda was for me to help them gather information for divorces they were planning.”

 

QUESTIONS FOR BOTH PARTNERS

Sometimes red flags are obvious. David Diesslin, president of Diesslin & Associates in Fort Worth, Texas, recalled when a couple came into his office for an introductory session. The husband owned a successful business. “I’d gotten 80% of the information I needed and thought that it had been a wonderful insight session,” he remembers.

“In my normal process, I ask questions of both partners.” As the meeting ended, the husband asked if he could return the next day because he needed to speak privately.

At that meeting, the husband disclosed that he and his wife led separate lives and that he kept some matters entirely from his wife – one being that he was supporting another woman. “At that, I closed my notebook,” Diesslin says. “I told him that I work for both spouses and it’s not going to work. They didn’t become clients. You wouldn’t keep employees if you doubted their word or experienced a loss of trust, and it’s the same with clients.”

View Original Article on: http://www.financial-planning.com/fp_issues/2012_7/fraud-deception-married-couples-financial-planners-2679519-1.html?pg=2

Financial Planning Empowers Divorcees: Interview

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Financial planning in preparation for divorce can be an overwhelming and intimidating process. Lili Vasileff, CFP, president of the Connecticut-based Divorce & Money Matters and president of the Association of Divorce Financial Planners, is a pioneer in an industry that she believed was not addressing perhaps the most intimidating question facing women going through a divorce: “What do I do now?”

She founded her company in 1993 to empower women with the knowledge and tools they would need to successfully navigate their divorce. “What existed then, and what continues to exist,” she told Millionaire Corner, “is a lack of focused resources for individuals going through this transition. (When I started my company) it was clear that women, typically, were  inexperienced, and less knowledgeable about finances, and had very few resources to tap into to gain that knowledge and a better understanding of the decisions she was being called upon to make.”

Working with women who had little experience about their finances, formulating goals or creating a budget (and in some extreme cases not even knowing how to open a bank account), Vasileff was motivated to fill a void left by divorce attorneys. “They were, appropriately, focused on the legal side (of the divorce),” she observed, “dotting the i’s and crossing the t’s. But no one was giving these women a financial planning roadmap. Many were in a state of paralysis, fear, or trauma, and didn’t know how to proceed. I thought that was a huge injustice.”

Here, according to Vasileff, are some of the most common financial planning mistakes women should avoid:

·         “Don’t let the attorney make decisions for you. They are experts in the legal process, but not the experts on your life. They don’t know your goals, fears, or preferences. They navigate a legal process to make sure (the divorce) is fair and ethical. They don’t tailor it to the individual. Women need to participate in those discussions and decisions.”

·         Not understanding tax implications of decisions women are called upon to make.

·         Not projecting forward how your expenses will change and incorporating those changes into your settlement. “If, for example, you lose health insurance,” she noted, “you’ll have to purchase it through COBRA. That expense is vastly different from what you currently pay. “

·         Hang tough. In an adversarial divorce involving children, Vasillef said, she has seen women beaten down over issues of visitation and custody. “It’s a scare tactic,” she said. “By the time talks get around to finances, women are drained of energy and forfeit their financial wellbeing for the sake of their children.”

What can women do prior to the divorce to put themselves on more solid footing? Vasileff recommended:

·         Make copies of all financial records and statements. “This is good practice for everyone,” Vasileff noted. “If something happened to your spouse, would you know where your life insurance policy is? You should have this information on handy anyway, like a first-aid kit.”

·         Make a list of assets.

·          Obtain credit reports on yourself and your spouse. “Sometimes, when people go through a divorce, (the credit rating) holds the biggest surprises.”

·         Pay down as much debt as possible.

·         Set aside a rainy day fund with enough money to cover at least two or three months of expenses.

Money, Vasileff said, is the primary issue in divorce. “Couples need to communicate about money; not just about how much there is, but what their goals and values are.”

The prolonged economic downturn has only complicated the process, with some couples postponing their divorce because their assets are underwater, or there are the needs of aging parents and so-called “boomerang children” returning to the fold to consider.

Now, more than ever, Vasileff observed, “financial literacy is not just for divorce. “For men and women, whether they divorce or not, she emphasized, “information is power.”

 

 

Lili Vasileff, president of the Association of Divorce Financial Planners shares financial planning dos and don’ts
Article |            | By Donald Liebenson

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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