Divorce Can Spell T-R-O-U-B-L-E With Wealth Management Advisors

Divorce can be problematic for wealth management advisors
Divorce can be problematic for wealth management advisors

Approximately 50% of American marriages end in divorce, making this a common process that wealth management advisors have to assist clients in navigating. However, what may seem logical can get advisors in trouble.
Divorce is not only a financial issue, but it is also intertwined with legal matters. This creates rocky terrain for advisors who are not in step with the sometimes confusing legal structure surrounding a dissolution of marriage.
Divorce law, to put in bluntly, is a bit of an oxymoron. It’s based on interpretation of laws based on fact patterns that may (or may not) mimic what your clients are going through. Because divorce law is based on case law and fact patterns, it requires caution from financial advisors—be careful what you tell your clients before any formal proceedings.
Don’t Make Promises
Even if you think you’re giving your clients sound advice, it could be that you’re overstepping boundaries. This could make life difficult for your clients’ lawyers.
Avoid setting your clients expectations. Don’t estimate what settlements should be. Expectation management is crucial here—avoid disappointment early on. No matter how accurate your forecasting and estimates are—based on your clients’ financials, often things can change during divorce proceedings. Even if the settlement estimates is reasonable, it may not come to fruition. Avoid picking best case scenarios as a financial planner in this case—you don’t want to put ideas into your clients’ heads.
Also, take caution: What seems to be sound advice to you as a wealth management planner in what may happen during the divorce can be deemed unlawful. Be careful about what you decide to show to your clients.
Divorce is emotionally charged, but it is still very much entrenched in legality. Protect yourself and your client-advisor relationship by being careful not to set expectations that may never happen and erring on the side of caution as far as legal matters go.
Here are some things that you can advise clients on:

  • Prepare a budget for clients to follow until the divorce is final.
  • Help them compile monthly bank statements and make copies for their attorney.
  • Make copies of all tax returns—both filed jointly and separately.
  • Make sure all taxes are paid to date.
  • Instruct clients to check safe deposit boxes.
  • Instruct clients to avoid large purchases.
  • Don’t transfer any jointly owned assets.

By avoiding crossing boundaries and setting any expectations for post-divorce financial settlements, you set your clients up for the best possible scenario and maintain a functional relationship with them that stays on the right side of the law.