Involving the right financial professional as early as possible in the process can help to improve outcomes while reducing client stress during divorces involving wealthy couples.
By Vincent J. Fiorentino & Alexandra I. Mililli, Financial Advisors
Family and matrimonial law attorneys are well accustomed to utilizing professionals to help achieve quality outcomes for their clients going through the challenges of divorce. However, are they getting the best use of their associations with financial professionals to increase the odds of favorable outcomes for their high-net-worth clients?
Clients of divorce attorneys today may have a greater need for sophisticated financial advice than the previous generation did. Investment assets have grown more and more complex, necessitating the need for increasingly specialized advice and services from investment professionals. Here are five important ways in which financial professionals can support family and matrimonial law attorneys during all aspects of the divorce process.
1. Discovery: Helping to Complete the Financial Affidavit
Most matrimonial attorneys know that clients going through divorce can have difficulty pulling together even the most basic financial information for their financial affidavit. Especially in high-net-worth divorce, one party in a household is often more knowledgeable about investments and finance than the other, who may lack the most basic understanding about the family’s finances. An experienced financial advisor can help clients to gather, understand, and organize the information needed to complete their financial affidavit. When a financially inexperienced client is feeling helpless or stuck, a financial advisor can help to “unstick” them, breaking the work down into a series of tasks the client will find manageable. This first step can help lay the foundation for a less stressful divorce process and eventual positive outcome for your client.
2. Evaluation: Deciphering Investment Portfolios
Accurately assessing a portfolio of marital assets is key to establishing the rules of the road during property-division negotiations. Whether a client or his/her spouse has “plain vanilla” brokerage accounts with liquid and easily understood securities, or is a principal in a private equity firm with illiquid and difficult-to-price holdings, knowing where the bodies are buried is an essential aspect of a divorce attorney’s due diligence.
Does the portfolio consist of low-cost basis stock, illiquid assets, closely held ownership interests, concentrated positions, or otherwise difficult to assess securities? An experienced financial professional can provide critical assistance in helping to fill in the gaps in a divorce attorney’s knowledge base.
3. Strategy: Different Ways to Slice the Pie
In a divorce involving substantial marital assets, there may be several possible distribution alternatives. A financial advisor can provide assistance during the negotiation process to help assess different asset splits, looking at the needs of the parties involved as well as considering tax minimization strategies for the distributions. For instance, does one party need more liquidity than the other? Will one party’s insistence on keeping certain assets require giving up all their retirement assets? How should a portfolio look after the judge has issued the divorce decree? Will the portfolio require significant rebalancing post-divorce, or is there a more equitable pre-divorce solution? An experienced financial advisor can provide guidance to achieve as many of the client’s financial goals as possible.
4. Financial Plan Modeling
Before your client accepts a settlement offer, creating an individualized financial plan can help boost their confidence and provide a roadmap for the future. Inputting data elements of a potential financial settlement into a financial plan – and running “what if” scenarios – may be highly effective at answering the main question that underlies most if not all of your client’s other financial questions: “Am I going to be okay financially – both now and in the future?” Of course, being okay financially means different things to different people; in a high-net-worth divorce, it might mean a $50-million settlement with lifetime spousal support of $1-million a year.
Even if the divorce is final, an attorney who has done yeoman’s work achieving the best possible outcome for their financially unsophisticated high-net-worth client can provide another layer of support and service by recommending a financial advisor who can help create a financial plan based on the actual settlement. A client who feels their attorney went above and beyond to take care of them may recommend that attorney to their friends and colleagues.
5. Post-Judgment Obligations
Does one party in a divorce have an interest in an asset to be sold in the future? Do stock options have to be monitored and potentially acted upon? In lieu of alimony, will one party get a percentage of future income-producing assets negotiated during the divorce process? A financial advisor can be instrumental in helping clients understand the income coming to them long after the divorce date.
A newly-divorced person may also need help setting and following a schedule many years into the future. A financial advisor can continue to work with a client when the attorney’s work is done.
Include a Financial Professional ASAP
Given the financial complexities of high-net-worth divorce, consider including a financial advisor early in the process. At or before the onset of divorce proceedings, understanding a client’s investment assets, financial position, budget, future income, etc. can be critical to a positive financial outcome. Evaluating marital assets, understanding different ways to equitably split up a portfolio, or conducting a pro forma financial plan can also contribute to a successful outcome.
Especially with high-net-worth clients, working in close collaboration with experienced financial professionals to manage expectations and facilitate the execution of a financial plan may be the best way to create a successful financial result following divorce.
Attorneys can gain operating leverage with the help of knowledgeable financial advisors. In the end, clients may find the divorce process less challenging – emotionally, physically, and mentally – when they are referred to experienced financial professionals by their trusted family law attorney.
Vincent J. Fiorentino and Alexandra I. Mililli are financial advisors with The Fiorentino Group at UBS Financial Services in Stamford, CT. Vincent is also the founding member of the Greenwich Chapter of the National Association of Divorce Professionals, whose mission is providing high-level support to individuals going through a divorce. Alex focuses on helping women in transition, specializing in financial issues involving divorce, widowhood, empty-nesting, career transition, and caregiving. www.financialservicesinc.ubs.com/team/fiorentino
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