One of the most common questions I hear when I meet with divorcing clients is some version of “Am I going to be OK?”

Divorce is a major life change, and it can feel like a major threat.

If you’re in this situation, that’s a sign that you may need to hire a divorce financial advisor.

In this edition of Graceful Exits, I’ll outline how a divorce financial advisor can help answer key money questions and build your confidence.

The most useful way to illustrate the role of a divorce financial advisor is with a case study. To respect client privacy, this narrative is not based on any specific past case. It is designed to reflect a typical case.

Meet The Smiths

Mr. and Mrs. Smith have been married for 25 years. Mr. Smith works as an engineer for a large oil and gas firm. Mrs. Smith worked as a nurse until the birth of the first of three daughters. After that, the Smiths decided Mrs. Smith should be a stay-at-home mom. 

That same year, they bought a house in the suburbs. When their youngest turned 13, Mrs. Smith went back to work part-time at a small family medicine clinic.

Their daughters are now 20, 17, and 14 years old. Mrs. Smith is responsible for paying the monthly bills, and Mr. Smith handles the family’s investments.

Though she attends review meetings with their Financial Advisor, Mrs. Smith is not very engaged with the family’s investments. Mr. and Mrs. Smith have never made a written Financial Plan.

Deciding on Divorce

Mr. and Mrs. Smith have both been unhappy in their marriage for a while.

After attending therapy together for a few months, they decided that they should end their marriage. Both interviewed and hired attorneys, and Mrs. Smith filed a petition for divorce.

In the process of preparing to negotiate for temporary orders^[1], Mrs. Smith begins to wonder if she’ll be OK after the divorce.

Will she need to go to work full-time?

Will she be able to retire on time, or will she need to work into her old age?

Will she be able to stay in the family home?

Will she be able to continue living the same lifestyle she’s used to?

What assets will she get in the divorce, and how will she handle them?

Mrs. Smith poses these concerns to her attorney, who honestly tells her she isn’t sure. The attorney suggests that Mrs. Smith talk to their Financial Advisor.

Mrs. Smith considers this, but judges that she never really liked their Financial Advisor and feels they would be biased in favor of Mr. Smith. After searching the internet for a “divorce financial advisor,” Mrs. Smith comes up with a person she wants to interview.

This person is a Certified Divorce Financial Analysist™ (CDFA®) and a CERTIFIED FINANCIAL PLANNER™ Professional (CFP®) who specifically works with divorcing individuals.

What is a CDFA?

The Interview

After a short phone call, Mrs. Smith arranges to meet with the divorce financial advisor. She arrives feeling apprehensive and unsure if this person can really help her.

A few minutes into the interview, Mrs. Smith asks, “Am I going to be OK?” The advisor looks up and responds:

“I’m not sure yet. Let me show you how we’ll answer that question together.”

The advisor explains her process, which starts with understanding Mrs. Smith’s goals for both her divorce and her life after divorce. After defining these goals, she will work with Mrs. Smith, her attorney, Mr. Smith, and his attorney, to put together a detailed inventory of assets.

They will answer questions like:

• Whose name is on each asset?
• Are the assets easily converted to cash?
• Is there debt associated with the asset?^[2]
• Are all the assets Community Property, or are some Separate Property?^[3]

Community Property in Divorce

Part of this process will involve educating Mrs. Smith on the different types of assets in the estate, so she can feel confident in her understanding of what is being divided and what she will receive.

The advisor explains that she will help Mrs. Smith make a budget. The budget can be used to decide if Mrs. Smith should return to full-time work, and if so, when.

Next, the advisor explains that she will help Mrs. Smith decide which assets she wants to ask for in her divorce settlement based on how well those assets serve her needs and goals.

Once Mrs. Smith and the advisor know the assets she may be awarded, the advisor will use specialized software to analyze whether the assets will be enough to get Mrs. Smith to her goals.

If this analysis shows the assets aren’t enough, the advisor explains that she will make recommendations to help Mrs. Smith increase her chances of meeting her goals.

The Work

Mrs. Smith leaves the interview with a lot on her mind. After considering her options for a few days, she calls the divorce financial advisor to ask for the paperwork she needs to sign to get started.

Over the next several weeks, Mrs. Smith feels her confidence growing.

She is still apprehensive, but she feels more informed each day.

The divorce financial advisor takes time to help Mrs. Smith understand the difference between her husband’s pension benefit, 401(k), and their investment account.

Together, they look at the cost for Mrs. Smith to stay in the family home — Mrs. Smith begins to understand that because of high property taxes and maintenance costs, she would be better off selling and moving into a smaller home after their youngest child leaves for college.

They also plan to keep enough cash in the bank to cover property taxes and maintenance for at least the next two years.

As they continue to work through her case, Mrs. Smith begins to form a clearer picture of her post-divorce life. To her relief, she learns that she will not need to return to full-time work unless she wants to.

The advisor takes the time to explain the basics of investing, and Mrs. Smith begins to feel more confident about administering the assets she expects to be awarded in the divorce.

The Resolution

Mediation day arrives, and Mrs. Smith and her attorney meet at the mediation center bright and early. They’re armed with an opening offer, and a clear understanding of which assets Mrs. Smith can do without and which she can’t.

They both know that Mrs. Smith’s divorce financial advisor is just a phone call away if they have questions. The mediation session isn’t easy, but by the afternoon, the Smiths reach an agreement they both feel comfortable with.

Some weeks later, Mrs. Smith is reflecting on her experience over the past several months, and she realizes how much she’s learned and how confident she feels.

Even though she has some healing to do, Mrs. Smith can see a bright future ahead.

"Do I Need a Divorce Financial Advisor?"

The answer is maybe.

Only some cases or clients will benefit from the services of a divorce financial advisor. The key question to ask yourself is: “Can I say with confidence that I’m going to be OK?”

If neither you nor your attorney can answer this question with a yes, that is a sign you should at least interview some divorce financial advisor candidates.

Because divorce is a very specific process with very specific rules, consider seeking out a Certified Divorce Financial Analyst™ (CDFA®).

If your case is especially complex, you might want to find a professional who also holds a CERTIFIED FINANCIAL PLANNER™ (CFP®) certification since they will have advanced training in financial planning, retirement plans, investments, taxes, insurance, and estate planning.

Dissolving a marriage is rarely easy but using the right set of professionals can make the process just a little less intimidating.

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The scenario described is hypothetical and is intended solely to illustrate the types of financial planning services that may be provided. It does not represent the experience of any specific client. Actual client experiences and outcomes will vary depending on individual circumstances and it should not be interpreted as a guarantee of future results or client experience. The information offered is provided to you for informational purposes only. Baird is not a divorce, legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action.

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.

Robert W. Baird & Co. Incorporated.