Within the collaborative divorce process, in addition to each client engaging their own divorce attorney, two “neutral professionals” round out the team to reach a divorce settlement amenable to both parties: a mental health professional (MHP) and a neutral financial professional (FP). For this post, we will focus on the financial professional: who he or she is, what he or she does, and why he or she is a vital, necessary component to a successful collaborative divorce.
The neutral financial employed is one of two types of financial professionals: either a CPA, or more commonly, a financial planner/investment advisor. Which professional a couple requires as the FP depends on their specific circumstance. Are their assets and liabilities generally straightforward or does their estate involve more complex tax issues? In most cases, a neutral FP with either background will function effectively. In some cases, the presence of challenging tax issues may incline the attorneys to choose a CPA as the FP. Interestingly, more wealth does not necessarily make for a more “complicated case,” financially speaking: while more wealth can certainly create more complexity, the correlation is by no means absolute. Debt can also come into play in creating intricacy.
Attorneys advise their clients whether a CPA or a financial planner would likely work best in their situation. The FP, then, is added by agreement from both parties. The clients typically first meet the FP at the initial joint meeting. The first major task for the FP is the creation of a master financial spreadsheet. This tool is a reference point from which all financial details of an agreement can be set forth. The spreadsheet renders the financial landscape of the couple transparent, serving as an inventory of all assets and liabilities—everything they own and owe. The spreadsheet is the couple’s “financial selfie.” Each party is required to disclose every detail, no matter how ugly; indeed, they have signed an agreement before the first joint meeting that states each party will be financially forthright (among other stipulations). This agreement is the iron fist in the velvet glove of collaborative: in the unlikely event that an asset was not freely divulged and an agreement was signed, that resource would be awarded to the other client. If a client refuses to disclose relevant information, that client’s attorney must withdraw from the process. The incentive to settle once the collaborative process has begun is potent.
The FP performs other tasks and serves the couple in understanding their overall financial standing. He or she also provides useful information regarding the sale of a home, tax implications, and the real worth of monies in various accounts (money in an IRA is different than money in a bank account, for instance). The FP also helps attorneys and clients in option development. Different scenarios can be considered in the joint setting or meeting with the client and his or her attorney. Because the FP is indeed neutral, the focus is creating a custom scenario that achieves the goals and interests of both parties. Clients know that the FP, as part of the team, has no stake in one side or the other. This can create openness to explaining out of the box suggestions and solutions.