Dealing with settlements and emotions is time-consuming yet rewarding
Contending with divorce cases has become a labor of love for Terri R. Munro, an adviser with HC Advisors LLC in Sandy Springs, Ga.
The 30-year-old adviser began building her expertise in helping divorced women get back on their feet after she joined the firm five years ago.
“I kept getting referrals from clients who said their sister or friend was going through a divorce,” said the married mother of three. “Independent women kept cropping in my target asset range, and as the only female adviser at the firm, they felt comfortable working with me.”
Ms. Munro noted that there is some advantage in being a female adviser when working with divorcees. “They felt more comfortable working with a woman because of the law of industry averages: The adviser they were usually working with when they were married was a man.”
Either way, the cases require a combination of financial finesse and the ability to be an unofficial therapist.
“I love it, but it's challenging to deal with the emotions,” Ms. Munro said. “I've had clients whose husbands would try to turn the kids against them. What do you say to that? Sometimes you don't say anything; you just cry with them.”
LIVING ON LESS
From a planning perspective, there are two parts to working with divorcing clients. First, Ms. Munro is trying to get these women to work within new financial parameters. Second, she's spending plenty of time educating them.
For the most part, her divorcees are between 40 and 60, a pivotal time for clients who likely have grown accustomed to having a dual-income lifestyle or a life in which the husband was the primary breadwinner. While education and planning are essential to working with all wealth management clients, tackling those topics is difficult with divorcees because these women are living through an emotionally turbulent time — and they still need to come to terms with the fact that they'll be living on less.
The idea that a divorce settlement is going to keep an otherwise mass-affluent woman set for life is a myth, Ms. Munro said.
“Your biggest asset is your ability to earn income,” she said. “If these women have been home for years, their prime earning years are gone. It's all joint savings.”
PROFESSIONAL NETWORK
Ms. Munro's planning niche has benefited from a number of factors. She built connections with divorce attorneys for help with referrals. While the lawyers are the ones drawing up settlements, a divorce planner is the one who translates these agreements into dollars and cents for clients.
Part of Ms. Munro's business includes consulting work on prenuptial agreements and alimony. “I tell clients that the attorney tells you what's strategically possible, and I tell you what it means to you,” she said. “We might be able to get a certain amount in negotiation, but most times, they have no frame of what that means in day-to-day life.”
Ms. Munro also has an advantage in that her firm has a relationship with a certified public accountant practice, so divorcees can dig into the details of the tax implications of their separations. For instance, spouses who pay alimony can make those payments tax-deductible, but recipients will have the money taxed. Child support, meanwhile, isn't taxable to the recipient.
Taxes also can shape a settlement. Even if an individual retirement account and an investment account hold the same amounts of money, withdrawals from the IRA will be taxed as ordinary income, for example.
Another area that can get overlooked in divorce planning is preparing for changes to health care arrangements. Divorcees often lose their health care insurance after a split, and coverage can be a part of the settlement negotiations. One spouse can cover the other for a period of time, footing the bill for coverage under the Consolidated Omnibus Budget Reconciliation Act of 1986.
“If your ex is paying for health care, you'll have to pay at the COBRA rate because you're not on his plan anymore,” Ms. Munro said.
On the front end, it takes a lot of work to maintain these clients. At the start of the relationship, Ms. Munro connects with her divorcing clients on a weekly basis. These investors tend to stick, and part of what makes this niche so rewarding is seeing these women emerge from their divorces financially savvy and independent.
“At the beginning, it's very intensive. I'm helping them get in control and get educated,” Ms. Munro said. “It's an investment in your client relationship, and they've invested in you at that point.”
