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It's safe to say people marry with the best of intentions, but a significant percentage of marriages in Western cultures don't end up “going the distance.” In the U.S. 40 percent to 50 percent of all marriages will end up in divorce, according to the American Psychological Association (APA).
Of course, divorce conjures up images of attorneys, courtrooms and judges, but financial advisors play integral roles in helping clients cope with the end of marriages. For advisors, assisting clients going through divorce often includes navigating different minefields for female and male clients, meaning this is a “soft skill” that is as much life planning as it financial planning.
Typically, financial advisors don't enter the divorce equation until later in the divorce process or not until its over and a client requires post-divorce assisting with financial planning. However, astute advisors that have fostered personal relationships with clients may become privy to a client's desire to file for divorce prior to the actual filing.
That scenario can make a rough situation more palatable because the client knows he or she has another advocate on their side in the form of their advisor and that that advocate has financial expertise. After all, divorce lawyers go to school to lean the law while the accountants that are so frequently involved in end-of-marriage cases are educated in tax issues, but neither the lawyer nor the accountant are financial planners or wealth managers.
To that end, the role of advisors takes on increased importance in divorces, particularly with couples that have not equally generated income.
Bread Winner Vs. Dependent: Issues Specific To Women
This is the classic divorce conundrum, financially speaking, and for generations, it has pitted a male breadwinner against his wife, who has either not worked while tending the family and home, or worked and generated less income than her husband. However, women are increasingly educated, generating higher levels of income and climbing the corporate ladder , so advisors working with female clients dealing with divorce should not assume the woman is an income “subordinate” in her soon-to-be dissolved marriage.
Data suggest divorce can be a financial burden for women, regardless of their income status in the marriage and advisors (again, lawyers and accountants will not do this) need to factor in a longer life expectancy for women as they prepare for life after divorce.
“According to one report from the U.S. Government Accountability Office,Footnote women's household income fell by 41% following a divorce or separation after age 50, while men's household income dropped by only 23%,” said Bank of America Merrill Lynch . “With women living an estimated five years longer than men, that dip in income can have serious consequences — which makes the financial decisions women make as they file for divorce all the more important.”
Regardless of their career or economic status, a mistake many women make in divorce is fighting for the house due to emotional ties (it's where children were raised, etc.) However, advisors working with female clients need to ensure that the woman can take on the mortgage, insurance, property taxes and related expenses in the absence of her partner, particularly if spousal support does not allot for the ex-husband being financially tied to the house.
Second, advisors should help clients, male or female, realize the house is an asset and should be treated as such. Post-divorce, no client should stay in a property that is a financial burden. And for women that do end up with the house in divorce, they've got planning of their own to do, putting added emphasis on the advisor/client relationship.
“Since women often get custody of the children and ownership of the house in the divorce, they need to budget for household maintenance and child care,” notes MassMutual . “It’s important to understand how much these things cost so they can negotiate enough money to pay for them in the settlement.”
Dealing With Men: Predictably, A Different Ballgame
Solid divorce advice for one sex isn't always the same for the other and that's true of financial advice in a divorce situation. In many traditional marriage settings, the man is in charge of the investing, retirement planning and related fare, and many men do this on their own, without the help of an advisor. Even if the husband was a competent investor/retirement planner, without the help of an expert, much of that good work can be undone in a divorce.
“Having an expert to sift through the financial aspects of the divorce and advise the attorney frees your lawyer to focus on the legal aspects of building your case,” according to Men's Divorce . “You are also able to rest easier knowing that you have a professional on your side who is qualified to make sure your settlement is fair and that your immediate, as well as distant, future is protected.”
Obviously, men and women are wired differently and their innate coping skills differ, too. However, men face many of the same post-divorce concerns as women, such as budgeting, maintaining a comparable quality of life, particularly if the ex-wife generated significant income, and replenishing retirement assets if some were lost in the divorce.
Broadly speaking, men view making money and wealth planning in linear, not cyclical fashion. The right advisor can help male clients reconfigure this view after a divorce, which can lead to better outcomes for male clients dealing with ended marriages.
An experiment performed by the Association of Psychological Science “showed that if you change the way you think about time from linear to cyclical, seeing life as many large and small cycles with events that can repeat themselves similar to the four seasons of the year, you become more likely to act a similar way as each cycle passes,” according to Men's Rights . “The results showed that participants in the study who thought of life in cycles reported 82 percent more in their savings than those who thought of time linearly.”
Related: The New Generation Of Asset Allocation: It’s All About Life Planning