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Divorce Retirement Financial Advisers Challenges When Couples Split

Divorce Retirement: Financial Advisers Face Challenges When Couples Split Later


Posted: 03/12/2012  1:11 pm

By Jessica Toonkel

NEW YORK, March 12 (Reuters) – As part of the  retirement planning process, financial advisers often help  married couples prepare for the eventuality of one dying before  the other.

What few people talk about is what happens if the couple  divorces as they are approaching retirement.
Unfortunately, this is becoming more and more common. Over  the past 20 years, the divorce rate among people between the  ages of 48 and 66 has increased by more than 50 percent,  according to U.S. Census Bureau data.

“We always talk about the risks people face in retirement,  like inflation risk and health care costs risks, but very rarely  does anyone mention the risks of being single in retirement,”  said Tina Di Vito, head of Bank of Montreal’s BMO  Retirement Institute.

For financial advisers, a divorce by clients can be a  minefield of strong emotions and conflicting interests, not to  mention their shock at seeing their assets get cut in half.

But advisers say they can get their clients through this  trying time with a significant amount of hand-holding and  expectation-setting. In some cases, they may even refer them to  other financial advisers who do not have a previous relationship  with either of the clients.

While advisers agree that there is no way to plan long-term  for divorce, they can take steps to be more prepared for it.
A growing number of advisers are becoming “certified divorce  financial analysts” by taking a four-part, self-paced course  covering such issues as tax ramifications, property division and  budgeting matters.

The number of advisers who get certified annually has  doubled since 2002, according to the Institute of Certified  Divorce Financial Analysts. There are now 1,500 CDFAs in the  United States and Canada.

Having this designation can help advisers get to clients  before they have been hit by the emotional toll and financial  distress that a divorce causes because clients are likely to  come to them early in the process after seeing they are  certified divorce financial analysts.

“I was meeting so many people post-divorce who came to me  with their settlement checks asking, ‘What should I do now?'”  said Lauren Klein, a Newport Beach, California-based adviser who  got the certification. “I thought if I could get to them sooner,  I could help them avoid the litigation process.”

Often, once a couple starts thinking about divorce, the  husband, wife or both will ask the adviser what to do. This  presents a tricky situation.

If only one spouse is coming for help, advisers have to be  sure to include the other in the conversations, or else they are  opening themselves up to lawsuits down the road.

“I might help them understand what their assets are and what  the tax consequences would be if they sell certain assets, but  then I refer them on to someone else during the actual divorce  process,” said Wendy Spencer, a certified divorce financial  analyst and family law mediator.

Some advisers feel that there is too much potential for a  conflict of interest if they continue to work with a couple  during a divorce. In these cases, they often refer their clients  to another adviser just to help them through that process.
The danger with referring clients, however, is that the  adviser risks losing them.
“I would rather risk losing a (client) than the possibility  of a lawsuit from a client claiming I sided with the other  party,” Spencer said.

And lawsuits are something to be concerned about. “Most  clients coming through a divorce want to blame someone,” said  Lili Vasileff, an adviser with Divorce and Money Matters LLC and  president of the International Association of Divorce Financial  Planners. “Advisers need to make sure they have liability  insurance.”

Once clients have decided to divorce, advisers can do  several things to help them — as a couple or as individuals.
But when emotions run high, the challenge for advisers is  helping clients understand when to let go. In particular, many  clients insist on keeping the house no matter what it means for  them.

“There is this idea that winning the house means you have  won, and that is just not the case,” said Columbus,  Indiana-based adviser Warren Ward.

Judith McGee, a Raymond James Financial Services adviser in  Portland, Oregon, had clients who were divorcing; the wife was  leaving the husband for another man.

The husband “did not want to finance his house to pay her  off because he was angry,” she said. “But all he had was an IRA  and his house and some income because he was semi-retired.”

McGee convinced the client to take a loan out on the house,  rather than dip into his IRA, to pay his wife.
Advisers are instrumental in helping clients divide their  assets.

Splitting up a pension plan when the employee is still  working, for example, is not so simple, said Diane Pearson, an  adviser with Pittsburgh-based Legend Financial Advisors Inc,  which has $350 million in assets under management.

The adviser needs to determine the present value of the  pension. Then the adviser must confer with the nonworking spouse  to see if it makes better sense to receive the pension amount  now or upon the working spouse’s retirement.

Similarly, splitting up stocks requires figuring out what  the couple paid for the shares.

“Even in a collaborative divorce that is amicable, splitting  everything 50/50 can be tricky,” Pearson said.

An important, yet challenging priority is helping to set the  client’s expectations about his or her post-divorce lifestyle.
This can be particularly challenging if the client did not  manage the finances in the family. For these clients, who tend  to be the wives, advisers may need to do extra hand-holding,  they said.

A lot of this work has to do with knowing when a client just  needs empathy rather than advice.

“Advisers need to understand the stages of grief and that  this is a slow process,” McGee said. “Don’t give a lot of advice  too soon.”

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