A bitter divorce can be hard on everybody, including a financial advisor. As husband and wife try to inflict emotional and financial damage on one another, their advisor may be caught in the middle, where all he or she can do is watch the best-laid investment plans go to ruin. The couple's assets may be divided in a way that makes both partners unhappy and the advisor, a convenient scapegoat, may be left with two fewer clients.
There is a better way, somewhere between an amiable parting and war. It's called collaborative divorce, and it's designed to reduce the hostility and distrust that fuels divorce showdowns and raises the emotional and financial costs of a breakup.
In the short run, promoting this idea with your clients leaves you on the sidelines with nothing to gain financially. Over the long run, though, you could have two solvent clients when the divorce papers are signed. At the same time, by gaining experience in collaborative divorce, you can open your practice to a new line of business with unlimited potential.
“There is definitely a need out there since, unfortunately, divorce doesn't look like it's going away,” says Nicole Middendorf, an independent registered representative at Strategic Financial in Plymouth, Minn., who has made divorce her specialty.
Here's how it works. In collaborative divorces couples rely on a team of professionals, including a financial arbitrator, who work together to fashion a breakup that takes into account the highest priorities of each spouse and their children.
As with a traditional divorce, each spouse hires an attorney. But the lawyers must actually work together and share all information — avoiding those courtroom “gotchas” that can lead to costly delays. In addition, the couple shares a divorce coach, often a family therapist. The coach deals with the inevitable emotional issues that arise during a breakup. If the couple has kids, another specialist will join the team to provide the children with a voice in the process and deal with their fears and guilty feelings.
The financial arbitrator may be a financial planner, a registered rep, a certified public accountant or some other financial professional. The one thing the advisor can't be is you, the divorcing couple's advisor; a person who has never had any contact with either of the spouses is more likely to be seen as looking out for the interests of both. There's also less chance of somebody getting away with hiding assets or capitalizing on one spouse's lack of financial knowledge.
The arrangement cuts you away from your own clients while the divorce proceeds, but you get to be the hero for suggesting a financial peacemaker and can earn the loyalty of both spouses as they head off into the world separately. In the meantime, you can fill the role of arbitrator in other divorces.
Making a Commitment
Before they start working with the team of professionals, the estranged husband and wife must agree in writing to commit to the collaborative process. They promise not to stalk off to court or even threaten to do so if things don't appear to be going their way. The consequence for breaking this promise is severe: The attorneys and other professionals will walk away, leaving the couple on the hook for whatever they have paid for the divorce up to that point.
The upside for the couple is being able to reach compromises that benefit both parties. Bob Bordett, an independent registered rep and certified financial planner at Consolidated Planning Corporation in Atlanta, says he has found a path where none existed before in the course of working on more than 130 collaborative divorce cases.
In one divorce, the couple owned 60 percent of a small business run by the husband. In a normal divorce process, the husband would probably have had to sell the family's share to generate money for a settlement with his ex-wife. But Bordett was able to help the couple work out an agreement that let him keep the business stake. In addition, the woman received part of the business's income.
In another case, a divorcing couple formed a partnership to own their vacation home rather than sell it. Since the wife had always taken care of the home's maintenance, making sure, for instance, that the boat was removed from the lake at the end of the season, she is now responsible for only 40 percent of the property's expenses. This sort of flexibility wouldn't have been possible, Bordett says, if a judge were making the decisions.
Even with all the professionals involved, the cost of the collaborative divorce can be lower, mainly because lawyers are not launching lengthy and costly attacks on each other — the norm in many contested divorces. In addition, court sessions are shorter, which also cuts lawyer fees. “Collaborative divorce costs about one-third of what a garden-variety, contested divorce costs,” estimates Stu Webb, the Minneapolis attorney who launched the collaborative divorce movement in 1990.
Cinda Jones, a certified financial planner at Divorce Financial Solutions in San Diego, says she's seen the bill for collaborative divorces range from $10,000 and $30,000, depending upon the complexity of the case. “People will say, ‘Yikes, that's a big investment,’ but it could involve the biggest financial decisions they make in their whole lives,” Jones says. In contrast, she says, the cheapest contested divorces can cost from $35,000 to $50,000.
A Growing Network
No one keeps statistics on how many couples have used collaborative divorce. But membership in the International Academy of Collaborative Professionals (IACP), which is an umbrella group for experts working in the divorce field, has been doubling annually and now approaches 1,850 members in 40 states. “The collaborative divorce phenomenon is growing by leaps and bounds across North America as the process is becoming more and more known,” says Bordett, who is a board member of the IACP.
Working as a financial arbitrator for a divorcing couple can be lucrative. Experts typically earn from $125 to $350 an hour, with the average case requiring anywhere from 10 to 15 hours of work.
However, advisors should not mistake this work for a recruiting tool: After the divorce is finalized, a financial arbitrator can't solicit the former husband or wife. That insures that the consultant remains impartial. In theory, an advisor could hammer out a financial plan that favors the wife because she has indicated that she will be his client afterwards.
Hourly divorce advisors, however, can still attract clients through referrals from other professionals. Bordett, for instance, says he refers his temporary clients to other financial professionals who specialize in divorce work and, in return, he receives referrals from colleagues who face the same restrictions. He says he has obtained far more referrals than he would have gotten if he had stuck to a generalized investment practice.
Finding collaborative professionals is easy. They can be found on the IACP Web site at collaborativepractice.com. In California, for example, 30 groups are listed on the Web site, along with 453 individuals who are involved in collaborative divorce.
When you're trying to break into the collaborative field, networking is critical since you'll typically get divorce work through professional referrals. Networking with attorneys who do collaborative divorce proved to be the ticket into the field for Andrew Hoffman, an investment advisor in Covington, La., who started attending continuing legal education classes several years ago. “The attorneys couldn't figure out why a non-attorney would be there,” he says. “But I spent as much time with attorneys as possible.” He initially broke into the niche by offering to evaluate pensions for divorce cases after he discovered that attorneys often don't want to handle defined-benefit issues because of the math required.
Becoming an Expert
Advisors who want to bill themselves as divorce arbitrators can be certified in the field by the Institute for Divorce Financial Analysts (IDFA), which is located in Southfield, Mich., and has 2,200 members. About 98 percent of the members are either financial advisors or certified public accountants. The organization provides training that leads to a designation called the Certified Divorce Financial Analyst (CDFA).
To obtain the certification, you must complete online coursework that focuses on the financial-planning needs of divorced individuals. Divorce tax issues, dividing retirement assets and valuing business holdings and pensions are a few of the topics that are covered. The total cost of the training is $1,500. You can learn more about the CDFA by visiting the organization's Web site at institutedfa.com.
However you work with people getting divorces, there is money to be made. Warring couples will be grateful that you've introduced them to the collaborative process and you can simultaneously attract more clients.
“Clients will be grateful that you directed them to a saner approach,” says Middendorf. “The worst thing that can happen is to sit there and say afterwards, ‘Boy, you got taken to the cleaners.’”