Late last year, Vanessa discussed research which indicated that nearly 40% of Australians were experiencing relationship strain due to financial issues related to COVID-19.
She argued that this would result in an uptick in clients “knocking on their adviser’s door” in 2021, and that advisers in this situation will find themselves supporting clients “emotionally as well as strategically”. But what does the role of an adviser actually look like when their client is divorcing? To what extent does the purview of financial advice overlap with potential family court proceedings? And how can an adviser contribute to making the experience as painless as possible?
According to Prosper Advisory director Josh Pennell, an adviser is best-placed to assist a client going through divorce if they’re there from the beginning of the process. “It can often be adversarial between the ex-spouses or the opposing lawyers,” Pennell says, “but in my opinion this is one of the biggest pitfalls and traps of the family law process.”
At the outset of a potential legal dispute, Pennell would recommend their client seek legal representation “who does not take this approach or who has a fee model that does not encourage this.”
“For example,” he adds, “whether they have fixed fees or clear processes around how they can demonstrate their interests are purely in helping the client to find the best resolution possible in a cost effective and timely manner. Otherwise, there is the risk that one party – client or lawyer – may for whatever motivations try to create greater problems simply through a desire to make it a drawn-out and messy process.”
Describing the ideal adviser as being a “voice of calm and reason” during this time, Pennell says it’s important to help clients understand the costs and benefits of different divorce settlements – and as above, this is much more effective if the adviser is involved at the outset.
“If possible,” he says, “we would be involved prior to settlement being reached as we could then help the client with analysing which assets are best for them to receive and also make them aware of any considerations such as a required sale, transfer of ownership of assets and any tax considerations.”
“In this instance,” he continues, “we also may not produce a financial plan yet, but instead give other advice regarding the potential settlement. We would then provide a more detailed plan once the actual settlement is known/completed, thereby reducing the potential issues and costs to the client of having to completely change their plan if settlement does not go as expected.”
Of course, legal proceedings aren’t the only concern when a client is divorcing – there’s also what happens once everything is more or less finalised. How will the client’s life change, not just in terms of their (potentially) modified mixture of assets and liabilities, but also their spending patterns and lifestyle?
These potential changes are why Pennell would likely avoid creating a full financial plan until a clearer picture of the client’s post-divorce situation can be established.
“We would generally provide advice that is relevant at pre settlement and then provide advice that is relevant post settlement,” he explains. “This can aid in providing the right advice at the right time and basing advice on known circumstances.
“Of course, using some assumptions or planning what might be needed post settlement is important, but where possible we aim to give advice that helps a client to either come to a settlement or move forward with strategies post settlement. Generally those two areas of advice may look quite different in terms of content and relevance.”
All of which demonstrates that advice around divorce isn’t a one-off event; it’s an ongoing process that requires careful consideration of a client’s needs (financially and emotionally) at every stage. While it’s beyond the scope of financial advice to completely eliminate the trauma associated with divorce, the benefits of the clarity and support an adviser can provide during this life event are immeasurable.
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