When couples get divorced, they can sometimes encounter financial planning concerns that a family lawyer alone may not be able to address. While a family lawyer can use state laws to help a couple differentiate between marital and separate property, the division of marital property may not always be as straightforward as splitting a shared bank account or selling the family home and splitting the profits.
In the state of Washington, for example, marital property is usually any property or income acquired during the marriage. Separate property is usually classified as any property or accounts owned prior to the marriage, or any inheritance received during the marriage. Contributions of marital income to separate business or investment interests can result in the marital estate having a stake in separate property.
Other factors can also complicate the division of property in divorce including the presence of a prenuptial agreement, business ownership (shared or separate), or the comingling of assets, especially after a long marriage.
Debts may be subject to division if they were acquired during the marriage. Separate debts are typically debts acquired before the marriage. But again, certain legal factors can complicate the division of debts.
A divorce lawyer can help a couple identify which assets and debts might be subject to division in divorce, and which assets and liabilities are separately held. Other factors, like each spouse’s financial situation, earning capacity, and standard of living during the marriage could also impact division of property in divorce.
In a longer marriage, where each partner’s contributions might not have been solely financial, other considerations may come into play when dividing assets, debt, and property. And, in certain situations, like in a high net worth divorce, other considerations might be made to ensure that one partner won’t be left destitute if property is divided strictly based upon a prenuptial agreement or a wealth management strategy that leaves one partner with all the assets and the other without.
Granted, in some situations, division of assets or debts in a divorce is relatively straightforward. If a young couple that is filing for divorce has a relatively simple financial situation, like perhaps just a shared bank account that they opened when they got married, with each party keeping separate bank accounts and credit cards, then division of property might be as simple as splitting the shared marital account.
In some situations, a couple that purchased a house together can relatively easily manage the split of assets through the sale of the home and the splitting of proceeds. A divorce lawyer might be able to help the couple navigate their split without the involvement of financial advisors and financial professionals in these situations.
Yet, marital property can include a range of other assets including shared investments, shared retirement accounts, like IRAs or 401(k)s (or a shared stake in one partner’s retirement account), shared interests in a small business, cryptocurrency, real estate, intellectual property, art collections, other collectibles, and other assets. Division of certain types of property can raise tax implications, as well as raise concerns about wealth and asset management strategy. Division of assets can also sometimes complicate retirement planning.
Couples don’t even have to be high net worth to encounter complex financial questions. If they own a small business or have spent years building retirement savings through an IRA or 401(k), they might need the assistance of a financial advisor, retirement planner, or tax professional to help them navigate their divorce, navigate the tax and retirement consequences of divorce, and divide their assets properly and fairly.
The less-wealthy spouse in a high-net-worth couple might find him or herself coming into significant independent wealth after a divorce and may have new wealth management and asset management needs. Divorce would be the time when these individuals look to hire a financial advisor of their own (especially if they used their partner’s financial advisor when they were married).
Couples who shared a financial advisor when they were married typically find themselves each needing to hire their own independent financial advisors, tax professionals, and wealth management professionals to avoid potential conflicts of interests. Couples and individuals with deep networks might find themselves at a loss of who to work with if they find themselves unable to work with their trusted financial advisors due to potential conflicts of interest.
Lawyers dealing with complex financial situations know that their clients need a competent team on their side, which may include financial advisors. Because of this, divorce lawyers, especially those who work with gray divorces and high-net-worth clients, will often have a deep referral network of skilled financial advisors and professionals to refer their clients.
Truce Law is a collaborative law firm that helps couples negotiate their divorce settlements outside of court through the collaborative divorce process. With collaborative divorce, couples agree beforehand that they won’t take their divorce to court. This doesn’t always mean that the issues that they face are any less challenging.
Couples who use the collaborative divorce process might be high-net-worth couples or high-profile couples looking for the privacy that collaborative divorce provides. Or they might be older couples who want to amicably divorce, but who also have significant retirement savings. These couples might need additional financial advice to divide their retirement to get the best possible outcome for both spouses.
For couples choosing collaborative divorce, the lawyers at Truce Law take the time to understand each unique situation, and then help couples put together a team of professionals, that includes their lawyers, and often financial advisors, to help them navigate their divorce negotiations and settlement.
Financial Advisors and Divorce
Chartered Financial Analyst (CFA)
A CFA can help individuals with their financial planning and wealth management strategies after divorce.
A CFA can look at the big picture, assess a couple’s net worth, and help the individual navigate financial planning after divorce. Couples with investments may need accurate estimates of the value of their investments and may even need to understand projected growth of these investments if they are meant for retirement planning.
Dividing retirement accounts and investment accounts can sometimes be challenging, especially if they have not reached maturity, or don’t have ready liquidity; sometimes one spouse will compensate the other with other marital assets to keep these funds intact or prevent an early sale at a loss. Understanding the value of investments and retirement accounts is paramount for couples in these types of divorce negotiations.
Certified Divorce Financial Analyst (CDFA)
A CDFA’s role is to help a couple navigate the financial aspects and tax implications of divorce. CDFA’s understand divorce laws and processes, and they can be key members of the financial negotiation and settlement process in your divorce.
They can help the couple understand the tax implications of their choices when dividing assets and debts. An example would be a situation where a couple needs to assess the after-tax value of a tax-deferred retirement account. Tax implications would need to be considered in such a situation when dividing assets, because it would be a mistake to value a tax-deferred account in the same way one would value a savings account for the purposes of division in divorce.
Certified Public Accountant (CPA)
A CPA can help a couple navigate complex accounting issues that can arise when dividing and assessing assets, and with business valuations if a couple owns a business together or if one partner owns a business.
The value of the business can impact everything from child support amounts to division of assets and alimony. Sometimes one spouse wants to keep the family business and will pay his or her spouse his or her share of the business’s total value. To be able to have these negotiations and discussions, both partners need to have an accurate assessment of the value of a shared business.
Collaborative Financial Teams
Some couples might need to hire a CFA, a CDFA, and a CPA, to help them with their divorce.
Sometimes couples might each hire their own CFA, while hiring a CDFA to serve as the financial mediator to their financial divorce negotiations.
In highly complex financial situations, each partner might want their own team that includes their own CFA, CDFA, or CPA representing their interests. The CPA, CFA, and CDFA work together with the couple’s divorce lawyers or collaborative lawyers to help the couple reach a financial settlement for their divorce that works for them.
Typically, the financial advisor will analyze the financial situation, and then provide a clear summary of estimates and other relevant information to the couple and their attorneys, which will then serve as the basis for divorce negotiations and discussions.
Ultimately, the role of financial planners is to give each spouse an accurate picture of marital assets and liabilities, and to help the couple understand the potential tax consequences and penalties of dividing certain assets. With this information, the divorce attorneys can help the couple identify shared marital assets and assist them in negotiating a settlement that makes financial sense.
Some couples might need to hire a CFA, a CDFA, and a CPA, to help them with their divorce. Sometimes, couples might each hire their own CFA, while hiring a CDFA to serve as the financial mediator to their financial divorce negotiations.
In highly complex financial situations, each partner might want their own team that includes their own CFA, CDFA, or CPA representing their interests.
The CPA, CFA, and CDFA work together with the couple’s divorce lawyers or collaborative lawyers to help the couple reach a financial settlement for their divorce that works for them. Typically, the financial advisor will analyze the financial situation, and then provide a clear summary of estimates and other relevant information to the couple and their attorneys, which will then serve as the basis for divorce negotiations and discussions.
Ultimately, the role of financial planners is to give each spouse an accurate picture of marital assets and liabilities, and to help the couple understand the potential tax consequences and penalties of dividing certain assets. With this information, the divorce attorneys can help the couple identify shared marital assets and assist them in negotiating a settlement that makes financial sense.
Other Financial Advisors
High-net-worth couples and couples with unique investments, highly diversified portfolios, international portfolios, or complex financial investments, might require other financial advisors on their team. These professionals can include cryptocurrency financial advisors, appraisers, wealth management professionals, forensic accountants, insurance agents, and estate planners. Let’s look at how these advisors can work together with divorce lawyers to help individuals move forward financially from their divorce.
Cryptocurrency Financial Advisors
These financial advisors can appraise the value of the couple’s crypto assets. If a couple has an extensive real estate investment portfolio, art collection, or other kind of collection, they may need to bring in appraisers and other experts to estimate the value of these assets.
Appraisers
If a couple has an extensive real estate investment portfolio, art collection, or other kind of collection, they may need to bring in appraisers and other experts to estimate the value of these assets.
Wealth Managers
High-net-worth individuals and couples might bring in wealth managers to help them keep an eye on the big-picture as they divide assets and liabilities with their divorce lawyers. Wealth advisors can help each partner understand how a division of assets will impact net worth, monthly income, and retirement plans, and these advisors can also work with individuals after the divorce to help them develop a wealth management strategy that makes sense.
Forensic Accountants
In some cases, a couple or individual’s financial life is so opaque as to make division of assets difficult. If, during discovery, the wealthier spouse reveals a net worth that is significantly lower than expected, then sometimes the divorce lawyer might want to call in a forensic accountant. A forensic accountant can dig more deeply into a couple’s business data, transactions, and each partner’s financial lifestyle to discover hidden assets.
Insurance Agents
If one partner will be paying the other alimony or significant child support, the divorce settlement might also require that the partner paying alimony take out life, health, or disability insurance to ensure that the partner receiving alimony or child support would be protected. Insurance agents would be called upon to draft insurance policies in a manner that ensures that the spouse is the named beneficiary, and that the payment plan has guardrails to ensure that the policy gets paid on time and doesn’t lapse.
Estate Planners
Divorce can have an impact on a couple’s estate plans. Wills and trusts might need to be changed or adjusted, and information about beneficiaries might need to be updated.
Business Valuator
When a couple shares ownership in a business—or even when one spouse owns a business—having a skilled business valuator on the team can make a big difference when it comes to negotiating a divorce settlement.
Business valuation can be very complicated, because the value of a business doesn’t always come down to the book value of the business (that is, the value of the business’s liabilities subtracted from its assets). The value of the business may also stem from intellectual property, specific processes, personal relationships, reputation, and specific skills held by one individual.
One aspect of a business’s value is something known as “personal goodwill.” This is a situation where the value of a business is tied to one individual’s skills, knowledge, and reputation. An example of this would be a private medical practice headed by one doctor. In Washington state, the value of a business tied to personal goodwill is not considered a marital asset.
One of the big conflicts in business valuation is determining what percentage of the business’s success is tied to personal goodwill and what percentage is tied to enterprise goodwill (namely, to the systems in place in the business itself, separate from the individual). An example of this would be a private medical practice headed by one doctor in name only, but which is staffed by several doctors who each contribute to processes and expertise that form the business value.
The question that needs to be asked with a personal goodwill business is this: if the one person were to leave or pass away, would the business be able to continue to be similarly profitable?
Because of these potential conflicts, when a couple has a shared stake in a business, each party might hire their own business valuation professionals, each with their own take. Then, both parties can go to the negotiating table—or to court—to determine how the business will be split.
When one partner is entitled to a significant share of a business or investment, the couple might not have sufficient liquid assets to work with. It might not be possible to sell the business or sell as asset without risking losses, and this is where negotiation and the collaborative divorce process comes into play. Collaborative divorce lawyers along with financial advisors can help the couple work through various scenarios and divisions of assets, and help the couple find creative solutions.
These are just some of the financial professionals that a divorcing couple might want to include on their team when negotiating their divorce settlement. The reality is this: most family lawyers are not trained or certified financial professionals. While a lawyer can help a couple understand what property or debts might be considered shared or separate under the law, a good family lawyer will encourage a couple to seek professional financial advice when it comes to dividing investment assets, retirement assets, and other complex assets.
Hiring a Strong Divorce Team
Because financial planners deal with complex topics, it’s important to not only hire a financial advisor who is skilled at what they do, but one who can simplify their findings during divorce negotiations, so that the couple and their divorce lawyers can use their findings to negotiate a divorce settlement. It won’t help to just be presented with a complicated balance sheet or set of data to comb through. A good financial planner can provide a summary of their findings, which can serve as the informative basis of negotiations and decision-making in divorce.
Collaborative divorce attorneys look beyond the immediate tangible goals a couple might have (things like, “I want to keep the family home” or “I want to keep my retirement account intact”) and help them delve into their deeper goals and values to help guide their divorce negotiations (wanting to keep the family home might come down to sentimental reasons or an unconscious wish to keep the family together; while wanting to keep a retirement account intact might stem from fears about not having enough money to have a secure retirement).
A good team of financial advisors and wealth managers can help their clients work through the deeper concerns to find solutions that work. When divorce lawyers and financial advisors work together with this model in mind, divorcing couples can negotiate a divorce settlement that helps them achieve their goals for retirement, family planning, quality of life, security, and more—and help the couple accept and come to terms with the compromises that may need to be made in divorce.
The Washington state collaborative lawyers at Truce Law are skilled divorce negotiators who take the time to understand our clients’ values and goals, and we help our clients develop a team of financial advisors who do the same.
This article is for educational purposes only and does not constitute legal advice. Every situation is unique. For guidance specific to your circumstances, consult a licensed family law attorney in your area.