Considerations for High Net Individuals Confronting Divorce

Divorce is almost always a complicated process, even in the most amicable of situations — and it’s even more difficult when it’s contentious. If the couple has significant net worth, it can quickly become complex. Most people know they need an attorney on their team. But not everyone knows what other professionals they may need such as an accountant and a financial advisor.

Why You Likely Need a Financial Advisor

While attorneys often get involved in the negotiation of things like assets and children, their expertise tends to lie more in the legal realm than the financial one. Some family law attorneys are certified financial planners or CPAs and have a high level of tax and financial expertise, but many don’t, particularly when it comes to more complicated matters. Another detail to consider is what happens after the papers are signed. The attorney’s job is to complete the divorce and once done, barring any issues like revisiting maintenance or child custody, the attorney is usually out of the picture. However, a financial advisor can be a valuable resource before, during and long after the divorce papers are signed.

When to Get a Financial Advisor Involved

The short answer is as early in the process as possible. In a perfect world, you would have a financial advisor well before any thoughts of divorce. If you don’t, now is not the time to go it alone. If anything, the divorce is going to add complexity to your financial situation. In almost all instances, there will be changes in your financial life post-divorce. Without a financial advisor on your team, you’ll be relying on your attorney to make decisions on how to split assets and look out for you. If you’re working with someone without financial expertise and you don’t have someone else representing these interests, you could end up hurting yourself inadvertently in the process.

How a Financial Advisor Can Help

During divorce, there are a few key reasons our clients turn to their financial advisors, namely to: Be Objective First and foremost, your financial advisor can take the rational road when the situation gets emotionally charged, which is bound to happen. Emotions and financial matters don’t mix and can often lead to bad decisions that can hurt you, possibly for the rest of your life. Assess, Value and Divide Up Assets as Efficiently as Possible Your financial advisor is already familiar with your financial life and can get out in front of the more complicated issues that can arise in high-net-worth divorce cases, such as:

Larger assets like real estate holdings, including high-value homes and multiple properties
Complicated assets like private equity holdings
Business assets like a family partnership in a business that needs to be divided
Sophisticated estate plans that need unwinding, such as complicated trusts or when spouses are trustees
Retirement savings, including when to obtain a QDRO, a court order that allows a 401(k) to be divided without triggering a taxable event
Tax implications that impact the valuation of assets

Help You with Post-Divorce Planning People who are affluent are less worried about whether they’ll have a roof over their heads or food on the table. But they are concerned about how the divorce is going to hinder their lifestyle and what changes they’ll need to make. A financial advisor can help you understand your new financial situation and make adjustments in response to your new financial reality.

What You Need to Do

As you contemplate divorce, there are steps you’ll need to take to get your financial house in order. It’s important to fully understand the value of all assets. Depending on your familiarity and the complexity, your financial advisor can be a valuable resource. It’s also important to have a handle on your monthly cash flow, including your income and expenses. For the spouse who’s less involved in the day-to-day household finances, this information is particularly critical. If the divorce is amicable, it’s a good idea to start unwinding your financial life from your spouses, such as separating your accounts. The more you can do yourself, the less you’re likely pay in legal fees.

What You Should Never Do

When emotions run high, it’s tempting to do make rash decisions that can impact your former spouse. Including hiding assets, draining bank accounts or altering spending habits. This is never a good idea, and in the digital world we live in, these decisions will come back to haunt you. Inevitably, the truth comes out and your credibility plummets, which can affect your divorce settlement.

Pitfalls to Avoid

There are a few common situations we often see that can be particularly damaging. Here are three of the most destructive ones:

Assume your financial life is going to be the same post-divorce as it was pre-divorce. Quite often what happens is that people continue to spend as they did before the divorce, even though their income has changed significantly. One way to get out in front of this is to accept this fact and work with a professional to develop your financial plan for life after divorce.
Give up because you want to be done. A lot of times we see one party start agreeing to less-desirable financial terms just to get the divorce over with. This is a natural, human inclination, particularly given how painful the process can be. At the same time, you’re entitled to your share of the assets, and at the end of the day, your attorney can be most effective when you’re willing to fight for what’s rightfully yours.
Act emotionally which can result in poor decisions. So much of what we’ve talked about ties back to the moments when emotions run high. Your financial advisor can help you see things objectively, so you don’t make rash or poor decisions, particularly in the heat of the moment.

How to Stay Sane About Money and Other Divorce Matters

Factoring emotion out of the divorce process is easier said than done. Here are a few tips we’ve found helpful:

Try to cool off and not immediately react. It’s easy to act impulsively and want to hurt when you’re hurting. Take a deep breath, a walk or a drive — whatever you find takes down your emotional thermostat.
Don’t make hasty decisions. Sleep on decisions whenever possible or at least advocate for the time you need to think things through. These aren’t easy matters and a quick decision in the moment can lead to years of regret.
Always try to get a second opinion, preferably from a financial advisor. At the very least, seek counsel from someone who’s not in an authority position and knowledgeable about the situation and issues of your case.
Lean on your support system. If professional advice isn’t available, someone you trust, whether it’s a good friend, co-worker or family member, can be a good sounding board, helping you see an issue more clearly and stay a little more centered when needed.

While divorce is never easy, with the right people on your team you can make informed decisions for yourself. At Relative Value Partners, we offer wealth planning services to help you accomplish your goals, achieve your desired lifestyle and leave a lasting legacy. If you’re struggling to make sense of your finances during a divorce, don’t hesitate to reach out to us. We can help you make strategic decisions that will minimize the impact on your lifestyle and financial future. About Jeff Fosselman, CPA, CFP®, JD With more than a decade of experience in the industry, Jeff Fosselman is instrumental in delivering financial planning strategies and counsel to high-net-worth individuals. As Senior Wealth Advisor for Relative Value Partners, Jeff provides comprehensive advisory services in estate planning, income tax planning, cash flows, asset allocation and other financial planning areas. Disclosure Information contained in this article is obtained from a variety of sources which are believed though not guaranteed to be accurate. Past performance does not indicate future performance. This article does not represent a specific investment recommendation. No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from Relative Value Partners, LLC which can only be provided through a formal advisory relationship. Clients of the firm who have specific questions should contact their Relative Value Partners counselor. All other inquiries, including a potential advisory relationship with Relative Value Partners, can be directed here.

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