Who better to ask for financial advice in times of divorce, other than TIME? Or at least a divorce attorney who explains that as much as a divorce lawyer, you need a financial advisor to help make the difference between a settlement you can live with – or disaster.
As a financial planner and estate attorney, I have found that too often in divorces, divorcing spouses each hire their own lawyer but not their own financial adviser. It’s a mistake that many wealthy people make, and one that can make them a lot less wealthy.
For example, one woman I know of was happy to get the family home in her divorce settlement—only later to discover that her husband had taken out a home equity loan to fund a high-risk investment. He had never told her about the loan, and his investment never reaped the rewards he had hoped for.
Disaster, in other words. The couple’s financial adviser carried out financial services for both parties and was unaware that the wife did not know about the loan.
Result? The divorce left her owning a property that carried twice as much debt as the original mortgage, and she had difficulty making the payments. Her finances and credit were ruined.
Unfortunately, most people seek financial advice only after the divorce, once things have already gone awry. It’s an easy mistake to make. Divorce is a stressful and overwhelming life event, and people would rather not add a new person into the mess. Rather than seek out a new financial adviser, one or both parties rely upon a lawyer or tax accountant to create the plan to separate the assets.
As both an attorney and a financial planner, I can assure you that law school does not provide the necessary training to competently offer financial planning advice. Your lawyer simply does not have a financial planner’s expertise to calculate and quantify your long-term needs—everything from retirement to insurance to college savings and trusts. Divorce can create a personal financial crisis, so it’s a critical time to have someone in your corner. Sharing a financial adviser with split loyalties is a recipe for disaster.
The spouse who takes custody of the children will often push for ownership of the home because of a strong emotional attachment and a desire for continuity for the kids. As a result, one spouse might get the house while the other gets the liquid assets. This can seem like a fair trade.
But while $1 million in blue chip stocks might grow in value and pay dividends, a $1 million home requires insurance payments, upkeep and significant maintenance costs. An independent financial planner can help make sense of such situations.
Similarly, different assets can come with very different tax liabilities, and financial advisers can help account for such complexities.
Stay-at-home spouses, whether male or female, tend to need independent financial advice the most. They might not have handled the finances in the past, and they may not have the trusted business contacts who can connect them with the best advice.
That was the case for a woman who turned to her own father, an attorney, for divorce advice. After all, she thought, if anyone would have her best interests at heart it would be Dad. But he also represented her husband’s company as corporate counsel, which was a serious conflict of interest. After the divorce she ended up unhappy with her financial situation and regretted her decision.
Another common problem in divorce is that one spouse can try to hide assets—for instance in an out-of-state limited liability company. A financial adviser knows how to look for such hidden assets.
There are also issues of conflict of interest for financial advisors, who will usually try and retain both husband and wife in any divorce, their compensation coming from the assets under management.
So when you’re hunting for a good divorce attorney – make sure you have an equally good financial advisor – who is unconflicted – representing you as well.