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Your Financial Advisor's Role in Your Divorce
What assistance can you expect from your current financial planner or advisor during your divorce? The short answer is "None." Your divorce presents a clear ethical dilemma and/or conflict of interest for your current financial professional. They must simply "sit it out," wait for the divorce to be finalized, then resume services, if you wish them to do so. Whether they realize this, or acknowledge as much, is up to them. However, this message is to help you make more informed decisions regarding whose advice you seek during divorce.
The best thing you can do for yourself is to hire an objective Divorce Financial Planner, who is a licensed financial and investment professional, as well as a divorce specialist. Verify their credentials: check their public record on BrokerCheck.FINRA.org and/or AdviserInfo.SEC.gov websites; confirm their divorce financial qualifications. As an investment professional, your Divorce Financial Planner will be familiar with the characteristics and nuances of most any financial account or investment instrument you and your spouse have in your marital estate. As a divorce financial specialist they will know the particular tax issues that are specific to divorce, or exceptions applicable in divorce, as well as the basic concepts of family law and the statute for your State. For more on how to evaluate a potential consultant and what questions to ask, go to DollarsOfDivorce.com/Articles/Choosing_Your_Professional/
An additional note when considering who to hire as your Divorce Financial Planner beware of anyone who offers these services at no charge to you. Question their motivation, objectivity, and level of expertise. It is my opinion that anyone working for nothing is actually working for themselves, not you. They will pass some time with you, and seem to give you a few "pointers," while their motivation is to be recruiting your assets for future management. This is their sales process. Objectivity is lacking because they may guide you to seek assets they can manage post-divorce, rather than what might be best for you if that includes illiquid assets or some financial instruments that are not in their business model and/or for which commission revenue has been exhausted. Their level of expertise is likely to be wanting because they simply cannot afford to spend the time required to provide in depth services, to anyone for free, and develop a comprehensive skillset.
Upon initiation of divorce proceedings, one of the first effects is that both you and your spouse will be ordered to not make any significant adjustments in your finances. You will simply maintain the current status of all accounts, and meet regular reoccurring expenses in the normal manner. Therefore, there is no need to discuss any changes in current investment strategies, nor should your advisor be making any. There is literally nothing for them to do until the divorce is over. If, perchance, you have signed a third party agreement with a portfolio manager, with whom you have no direct contact, to actively manage your accounts, that active management may continue, with no change in investment strategy or other investment instructions provided by you or your advisor.
The reasons why your advisor ought not involve themselves in the issues of divorce are varied according to the circumstances:
If both you and your spouse have accounts with the same advisor, that advisor has a fiduciary responsibility to each of you to act in your best interest. Now that you are engaged in the lawsuit that divorce is, your respective interests are at odds with one another. It is impossible to act in the best interest of one of you without damaging the other, thereby failing in their fiduciary responsibility to the other.
Only you have accounts with the advisor, and they may or may not be certified in the specialty of divorce finance. Either way, they still have an ethical conflict between what is in your best interest and their own best interest. Anticipating that the marital estate will be divided in such a way that you will have less to invest with them, investible assets will seem more desirable for them, but not necessarily for you. In addition, if they have no specialty in the finances of divorce, you will likely get flawed advice on the finances of divorce. If they are certified in divorce finance, they should have learned that this situation is a clear ethical conflict.
This is your divorce and you must become the expert regarding who is best to guide you through it. You cannot assume that an advisor will always act appropriately. Two cases come to mind in which I was involved that illustrate this point. In the first, the advisor had both joint and individual accounts for both spouses. The wife, as my client, told me that she felt she had the better relationship with the advisor. During the divorce she and her two children even went on vacation with the advisor and his family. Later, in the divorce process, we discovered that for many years the husband, with the advisor's assistance, had withdrawn hundreds of thousands of dollars, multiple times, from their accounts to use in high risk investments, most of which failed, without her knowledge. When asked, the advisor said that the husband made him agree not to tell the wife.
In the second case, both husband and wife had accounts with the advisor, who had a previous friendship with the husband. She knew where his allegiances may lie, but still insisted the advisor "was a really nice guy." She confided in him during the divorce. The case remained unresolved and was scheduled for a three-day trial. The issues were many and complex. The advisor was on the witness list to testify for the husband, and against the wife. Clearly, this advisor was clueless regarding his appropriate role in the matter. Fortunately, instead of going into the courtroom that morning, we (two attorneys and a paralegal with the husband, two attorneys and myself with the wife) went into a conference room and spent the next fourteen hours working out a settlement.
Even the "simplest" marital estate is bound to have financial issues. In fact, when the total estate is less, the importance of each dollar is more. Hopefully, you will be better able to select the professional financial help you need because you really have only one chance to get this right. There are no "do-overs" in divorce.