The probability that a marriage will end in divorce has reached as high as 48% in recent years. Working with a couple who is going through a divorce can pose a problem for a financial advisor. The original task was managing one asset base, but those accounts now must be divided, without bias from the professional. Sometimes an advisor needs advice.
Understanding Conflicts of Interest
The Certified Financial Planner Board is clear on their stance regarding conflicts of interest arising from divorce. The CFP states, “If a conflict of interest exists, the CFP® professional should evaluate whether he/she can continue to advise the client without impairing his/her ability to offer objective advice, recommendations or services. In all cases, the CFP® professional must disclose the conflict.” In the case of a divorce, the advisor must remain a neutral party.
The financial advisor can execute the final wishes of the divorcing couple. However, a CFP will have difficulty arriving at this point while abiding by the CFP Board standards. CFP and divorce attorney Violet Woodhouse remarked, “In a divorce, they [the couple] will have adverse interests, and you can't show a preference. Remember that there is no privilege between a financial planner and a client, as there is between an attorney and a client, so there's no confidentiality. That should be disclosed to your clients." What can a financial planner do to facilitate an agreement between two people with contradictory wishes? Ethical and professional standards are not in support of a financial advisor single-handedly managing two different goals for a client that was originally identified as one entity.
The Value of Support in Conversations Surrounding Divorce
To remain outside of the conflict, an advisor might consider bringing in another professional to help the couple work towards a financial agreement. If you have clients that are stuck, a professional who specializes in resolving financial conflict can help them come to a place where they are prepared to move forward.
This type of arrangement is constrained to a set amount of time or number of meetings, and it adds additional benefit to a couple going through divorce even if they are seeing a therapist and an attorney. A financial professional understands the details and complexity of dividing assets in a way that will lead to thorough consideration of what is being split. The financial professionals agree that the clients return to their original advisor with an agreement and plan of action in place.
This agreement offers great value to all involved. The financial advisor can remove himself or herself from the equation which protects them against accusations of conflict of interest and avoids the liability of any ethical missteps. Additionally, it provides a forum for the divorcing couple to untangle the commingling of emotions and financial assets. Often the financial battle is rooted in these emotions rather than true budgetary needs.
Addressing a Divorce Means Addressing Finances
While floundering finances may have accelerated the move to a divorce, it is also likely to slow the process later. This is where a specialized financial advisor can offer great insight. A study conducted by the Institute for American Values underscores the impact finances can have on a marriage. The findings show that "…debt is associated with less time spent together, more fighting, and significantly lower levels of marital happiness among these couples.” The professional acumen of a financial advisor is a critical step in finalizing a plan to split assets. Poor communication at the end of a marriage often requires this third party involvement.
There can be an honest discussion about money once the couple has engaged a truly neutral financial professional. If the couple’s current advisor worked more frequently with the husband rather than the wife, or vice versa, the person who has participated less in the advisory relationship may feel they are at a disadvantage when negotiating the split of assets.
Committing to a Plan
No matter how contentious a divorce has become, it may be best to get it resolved and move on. The early stages represent the best opportunity for success. Resist the common urge to use money as a weapon. In a divorce the goal is to separate permanently from a partner; squabbles over money make this difficult. Leveraging money as a resource to force another into submission will not work. A financial advisor who specializes in managing transition through conflict can act as a mediator so that both parties can reach an amicable agreement on how to divide assets.
Tom Chancellor is a Certified Financial Planner Professional helping clients enhance their financial peace of mind. Tom spent 20 years as a marriage and family therapist and now incorporates resources from psychology, communications, and relationship studies in financial planning for people who experience life-changing events. Tom helps his clients and other financial professionals respond to life transitions such as divorce, death of a spouse, retirement, receipt of an inheritance and legal settlements. Contact Tom with questions at email@example.com.
Securities offered through Comprehensive Asset Management and Servicing, Inc. (“CAMAS”), 2001 Hwy 46, Ste. 506, Parsippany, NJ 07054, 1-800-637-3211. Member FINRA/SIPC. Teak Tree Capital Management, LLC, is independent of CAMAS.