Time to Read: 8 Minutes
Earlier this year, we wrote about the emerging field of divorce professionals. Here, Allison Williams continues to explore the intersection of divorce and financial planning in a conversation with Carlie Berke of Your Money Advocate. Carlie explains the role of a Certified Divorce Financial Analyst® (CDFA), the importance of language and approach, and offers practical tips for navigating asset division during divorce. She also shares timely advice for divorce during the COVID-19 pandemic.
Tell us about your role as a Certified Divorce Financial Analyst and how you help clients navigate divorce.
“The primary goal is to keep your money in your family. I do this by helping clients come up with settlement options that meet their needs. I also work to take the emotion out of financial decision-making during what is arguably a very emotional process. Alongside a client’s financial advisors, we explore the various ways to divide up assets and income. We identify how to optimize the division for both parties, minimize tax implications, and decrease the ongoing mental impact of divorce.
I also try to educate clients about looking beyond the present in terms of the implications of decisions; I encourage them to consider the medium- and longer-term as well. A common example is the marital home: Someone wants to keep the marital home, which is a very emotional asset, but keeping the home may mean the person ends up being ‘house poor’ over time. The emphasis should be on long-term financial security, so I work to help clients understand how to balance short-term needs and longer-term implications.”
A compelling message shared by Your Money Advocate is rooted in the power of framing language as a client walks through a divorce. Can you share your thoughts and experience?
“I advise clients to be smart about negotiating what is typically the largest financial transaction of their lifetimes—and language certainly plays a role here. Clients can strategically approach the presentation of their proposals to their spouse, delivering them in a way that is likely to induce the best possible reaction. Backing someone into a corner, reminding them what they did wrong during the marriage, and listing all the ‘screw-ups’ won’t induce good behavior; it’s just going to make someone defensive. So, we work with clients to approach settlement language as a business transaction: I’m going to offer you this, and in return, I would like that. The goal is to address the issues as carefully and as thoughtfully as possible to give yourself the best chance to come to a settlement.
Clients tend to forget that, in divorce—unlike most business transactions—you can’t just walk away if an agreement isn’t reached. Instead, you walk to court, which means you put your entire financial future, family custody, and everything that’s important to you in the hands of a judge who has little time to really get into the issues particular to your situation. Judges are also constrained by law and specific codes; they generally don’t have flexibility to be creative.”
What are some practical tips on how to simplify a marriage settlement agreement?
Carlie explained that one easy technique is to pre-divide your account based on what you expect will be the final division amount (50-50, for example) through an in-kind transfer but without yet changing the ownership. This simplifies the language in your marriage settlement agreement, makes the agreement less expensive to prepare, and much easier to enforce or understand later when you refer back to it. There could also be opportunities to invest the accounts differently before the split is finalized, depending on the type of account (retirement vs. taxable), tax implications, and risk tolerance of the owners.
Another often neglected detail is confirming that the taxable accounts are split down the individual tax lot, and not just on the full position. This ensures that one spouse does not end up with the higher-cost basis stocks while the other spouse ends up with the low-cost basis stocks, which could incur greater tax liability at a later point.
Carlie stressed that these fine details exemplify why people who don’t already have a financial advisor or will need to get their own advisor should do so early in the divorce process. It’s never too early to bring in experts who can prepare you and your assets for the post-divorce world.
What are other practical tips clients can consider as they think about divorce during COVID-19?
“We are living through extraordinary times and, simply put, everything is taking longer. The number of marital dissolutions has increased and courts are overwhelmed with cases. Oftentimes, a longer timeframe can mean a more expensive and emotional process, but San Diego is an extremely good environment for non-litigated cases—there are excellent mediators, alternative dispute resolution options, and collaborative divorce options here.
It’s also important to note that small business owners may want to wait and reserve jurisdiction over their business valuation if the valuation is heavily impacted by COVID-19 one way or the other. In divorce, business valuations are only backward-looking, so deferring a valuation to the future could be one potential way to protect both parties.”
We are grateful to Carlie for speaking with BWM Financial about navigating divorce and its financial impacts. Divorce is often a difficult journey, but when our clients are able to draw on a deep team of qualified professionals, we believe they can emerge in a position to enjoy long-term success—both personally and financially.
Investment advice offered through Stratos Wealth Partners, Ltd, a registered investment advisor; DBA BWM Financial. Stratos Wealth Partners and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only; and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.