Financial Planning & Investment Advisory - 1995 · 2020. 7. 7. · care options. Either way, the lack of long-term care planning may place a massive emotional and financial burden

divorceFinancial Analyst Journal

October – December 2016$19.95

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Divorcing After 50 Make Finances Your Top Priority

Long-Term Care Insurance and Divorce A Conversation Worth Having

Becoming a Guidepost Five Practice-Building Tips from an Expert Who Averages 150 New Clients Each Year

Welcome to the Q4 issue of the DFA Journal!

As the beginning of fall is upon us, I would like to bring you up-to-date on some exciting new developments here at IDFA.

In just a few weeks, we will be hosting our first Canadian workshop in several years in Calgary, October 19–21. This is part of our renewed effort to provide training and support to our CDFA® professionals in Canada. Details are available at www.InstituteDFA.com/Calgary.

Our membership organization, Divorce Alliance, launched in July. Several chapters have begun having their monthly meetings, and we expect Divorce Alliance to con-tinue to grow. We are very excited about the interesting educational topics planned for the rest of 2016. Visit www.DivorceAlliance.com to find a meeting near you, or to get information on starting your own local chapter.

As we begin the final quarter of 2016, I would like to take a moment to recognize and thank our outgoing Board of Advisors members, Cathy Belmonte Newman and Jonathan Gorman. Their service has been much appreciated, and they have pro-vided invaluable guidance and assistance to the staff of IDFA. Their departure also triggers our call for nominations for two new members of the Board. We are looking for dedicated divorce experts to help us guide IDFA as it continues to grow. Please email [email protected] to submit your nominations.

Please enjoy this issue of the DFA Journal as it dives into complex divorce issues, such as QDROs and long-term care insurance. We also have a special feature from Ginita Wall of Second Saturday, who shares some great insight from her many years of experience working with divorcing clients.

Thank you for reading,

From theManager’s Desk

Institute for Divorce Financial Analysts

GENERAL MANAGERCarol Lee Roberts

BOARD OF ADVISORSCathleen Belmonte Newman

Jonathan S. GormanFaisal KarmaliRussell Luna

Matthew LattigDiane Pappas

CONTACT IDFA800.875.1760

[email protected] Sedwick Road, Suite 102

Durham, NC 27713

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in the DFA Journal?

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IDFA General Manager

Divorcing After 50 Make Finances Your Top PriorityAviva Pinto, CDFA

Long-Term Care Insurance and Divorce A Conversation Worth HavingBrian I. Gordon and Murray A. Gordon

Modifying Model QDRO LanguageSmall Changes Can Cause Significant Differences in OutcomeGarrick G. Zielinski, CFP®, CDFA, Grant G. Zielinski, CDFA, andGerard G. Zielinski, CDFA

Marital Agreements Wealth Conservation Toolfor Estate PlansPam Friedman, CFP®, CDFA

Becoming a Guidepost Five Practice-Building Tips from an Expert Who Averages 150 New Clients Each YearGinita Wall, CPA, CFP®, CDFA

Contents

While IDFA strives to make sure all information printed in the DFA Journal is as accurate as possible, we do not make claims, promises, or guarantees about the accuracy, completeness, or adequacy of the contents. All articles printed in the DFA Journal are the opinion of the individual writer.

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Divorce is a reality for a growing number of aging couples, a phenomenon commonly referred to as “gray divorce.” According to a 2013 study at Bowling Green State University, the divorce rate among adults ages 50 and older doubled between 1990 and 2010. Now, one in four Americans getting divorced is 50 or older.

The study also found that the divorce rate is 2.5 times higher for those in remarriages compared to those in first marriages. Those in the Baby Boomer generation, people born between 1946 and 1964, were the first to divorce and remarry while they were young, and may experience even more divorce as they age.

Divorce After 50 Can Involve Significant AssetsDivorces among couples in this age group may have significant assets at stake. At the same time, it is not unusual for one spouse to have a lack of in-depth knowledge about the family’s finances. In those circumstances, the non-moneyed spouse may not be aware of what a fair settlement should be.

Regardless of whether you handled financial decisions during marriage, it is critical to do whatever it takes to put emotion on hold when facing divorce. You will need to focus on your future and set financial goals, as these decisions will likely affect the rest of your life. Unfortunately, there is no “do-over” in divorce and you will need to focus on the money during this painful process.

Aviva Pinto, CDFA

2 Divorce Financial Analyst Journal | October — December 2016

Divorcing After 50

Make Finances Your Top Priority

Here are five steps to help to secure your financial future. If you are experiencing gray divorce, pay particular attention to securing retirement assets.

Do Not Overlook Financial and Estate DocumentsIt is critical to make sure you have updated beneficiaries on insurance policies, wills, IRAs,

retirement accounts, and similar documents after a divorce settlement. Failure to make changes can result in an ex-spouse inheriting assets that you intended to go to children, a new spouse, or another designated heir. It is especially important to have a Qualified Domestic Relations Order (QDRO) in place.

A QDRO will detail how you and your spouse will split qualified retirement accounts such as 401(k) or pension accounts. QDROs should be filed before the divorce is officially finalized because it will need to be approved by the retirement plan sponsor.

Make Sure You Protect a Divorce Settlement with InsuranceProvisions in a divorce settlement such as child support, alimony, and college tuition are dependent on

the ex-spouse’s ability to continue paying. You can stipulate that your ex-spouse is required to carry disability and life insurance as part of your settlement, to guarantee payment will continue in the event your spouse dies or becomes disabled. Another option is to be designated as the beneficiary on your ex-spouse’s retirement plan.

Don’t Forget About InflationInflation can have dramatic long-term effects on a settlement. For example, what costs $40,000 today will cost $47,640 in just four years. Be sure to work

inflation into your settlement negotiations.

Remember You Could be Entitled to Social SecurityIf a couple was married for 10 years or longer prior to divorce, a non-working or lower-earning spouse

is entitled to a portion of his or her spouse’s Social Security

benefits. These benefits do not impact the worker spouse’s Social Security payments.

Plan for the Long TermPlanning for your divorce settlement should include a post-divorce financial plan that considers your long-term financial needs through retirement and beyond—

especially when retirement is only a decade or so away.

Transitioning from one household to two will add expenses, while the total income supporting divorcing spouses may remain unchanged. You will need a realistic estimate of your

financial resources to determine whether they match your long-term needs and expectations. After you and your spouse are divorced, it is

important for you to embrace the financial plan that helped to shape your settlement.

For some, post-divorce may be the first time they have managed their own money. An advisor can help execute a post-divorce financial plan and make adjustments as new circumstances and changes in assumptions require. In some cases, you may need toto cut back on discretionary spending for entertainment or vacations, or move to a smaller home.

Working with a financial advisor who will help you define and set financial goals will give you the confidence you need to manage money and build a comfortable future for yourself in your new life.


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About the Author

Aviva Pinto is a Certified Divorce Financial Analyst (CDFA) and a Director of Bronfman E.L. Rothschild, a registered investment advisor. Based in New York, she has been in the investment business for more than 25 years. Aviva works with her divorcing clients to help them

feel more secure about their financial future. For more information, visit www.belr.com.

The Baby Boomer generation, people born between 1946 and 1964, were the first to divorce and remarry while they were young,

and may experience even more divorce as they age.

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Brian I. Gordon and Murray A. Gordon

hances are, some of your clients are in the midst of a divorce. In fact, you often may be asked to help sort out their life and health insurance plans, which are common negotiating points in divorce agreements. But it’s easy

to overlook long-term care insurance (LTCi) when clients don’t already have coverage.

You can perform an important service for your clients by raising the issue of long-term care planning with those who are divorcing or recently divorced. This is because while long-term care planning is important for everyone, it is even more important when someone is shifting from “couple” to “single” status.

For one thing, when spouses split, they typically lose their primary health care advocate, whether that translates to someone who provides hands-on care or the person who arranges for professional care. For another, following a divorce,

both parties will have a smaller pool of assets to fund potential long-term care expenses.

For the higher-earning party, a long-term care event may impact the ability to meet spousal maintenance and child

support commitments. For the lower-wage earner, it even can

C


A Conversation Worth Having

Long-Term Care InsuranceAND DIVORCE


create greater financial hardships, which in turn can limit their care options.

Either way, the lack of long-term care planning may place a massive emotional and financial burden on the couple’s children, regardless of age. Younger kids may find themselves deprived of their caregiver and/or their financial support. Adult children might be asked to share in the expense of care for a parent, whether they are ready or not.

Regardless of the situation, most couples would agree that minimizing the divorce’s impact on the kids should take priority, short-term and long-term, which is among the many reasons why LTCi should be part of the divorce conversation.

Building LTCi into Divorce AgreementsThe objective of a divorce agreement is to achieve an equitable division of assets and property. The higher-wage earner is expected to make concessions to provide for the lower-wage earner. Part of this agreement might include purchasing a LTCi policy for one’s soon-to-be ex-spouse while dividing assets.

Asset-based LTCi plans have proved to be a very helpful tool here, thanks to their guaranteed rates and flexible payment options, which allow premiums to be paid off in a set time period.

For example, we were asked to suggest a LTCi policy for a 55-year-old woman as part of her divorce agreement. Both she and her husband were eager to separate their financial affairs. For this reason, a traditional pay as-you-go LTCi policy did not hold much appeal to either party.

Working with the client’s financial advisor, we recommended a life insurance policy with a LTCi rider and a 10-payment premium plan. Premiums would be paid in full after 10 years, at which time the ex-husband’s responsibility would be fulfilled. Both parties signed off on the arrangement.

And when ample assets exist, a single-payment plan—in which premiums are paid in one lump sum—can be extremely useful in

the distribution of assets.

Spousal Discounts During Divorce? Yes!We have been in situations where both members of an amiablydivorcing couple have decided to apply for long-term care insurance – jointly.

Interestingly, a couple engaged in divorce proceedings typically can take advantage of spousal discounts offered under traditional LTCi policies. These discounts typically range from 10 percent to 30 percent and, in our experience, remain in place even after the divorce is finalized. Each individual receives their own policy anyway, so coverage is not linked going forward.

Some asset-based life and LTCi policies also offer spousal discounts, which divorcing couples can take advantage of. However, while most carriers issue separate policies to each spouse, at least one carrier issues a joint policy with individual LTCi benefits.

Provided there is an insurable interest (say, the welfare of the children), this policy can remain in effect post-divorce. However, although some ex-couples might find it expedient to share a joint

policy, it goes without saying that others might not be open to the idea.

LTCi, Divorce, and WomenLong-term care planning is especially important for women, from a number of statistical angles. Multiple studies over the years have shown that a woman’s standard of living is likely to drop following a divorce, while a man’s standard of living is more likely to increase after a divorce. In addition, industry statistics indicate that women are more likely than men to require long-term care. Women live longer than men. Alzheimer’s disease is the leading and most expensive medical diagnosis for LTCi claims,

according to the American Association for Long-Term Care Insurance (AALTCI), and nearly two-thirds of Americans who have Alzheimer’s are women.

What about Gray Divorce?The number of “gray divorces”—divorces occurring among


Long-term care planning takes on increasing

importance as clients get older. But when clients in their 50s are getting divorced, this type of

planning becomes even more essential.

people ages 50 years and older—has doubled in the past 20 years, according to a recent Bowling Green State University study. At the same time, it goes without saying that health problems increase with age and so does the need for long-term care. And thanks to medical advances, Americans are living longer.

Interestingly, people are now buying LTCi in younger middle age. It used to be that most consumers purchased their policies when they reached their 70s. Now people are buying it when they are in their 50s. In 2014, 80 percent of new LTCi policies were purchased by people between the ages of 45 and 64, according to the AALTCI.

The bottom line is that long-term care planning takes on increasing importance as clients get older. But when clients in their 50s are getting divorced, this type of planning becomes even more essential.

Divorce is difficult, period. It is a difficult time for clients and their families at any age or stage of life. But it is also a time when clients are re-evaluating and planning for the future. As their

agent or advisor, one of the best ways you can serve your clients proactively is to make LTCi part of your conversations. A little education and planning go a long way.


About the Authors

Brian I. Gordon is president of MAGA Ltd., a long-term care planning specialist.

Brian may be contacted at [email protected].

Murray A. Gordon, CEO, founded MAGA in 1975.

Murray may be contacted at murray,[email protected].


Modifying Model QDRO

LanguageShould a model QDRO be modified? Most likely, the answer is yes. A model QDRO is nothing more than a form of guidance and all ERISA plans cannot require that model language be used. Any order that satisfies the requirements under ERISA,REA, and the IRC for a QDRO must be recognized as such, even if the order does not bear a resemblance to the plan’s model QDRO.

The plan administrator’s problem is that a practitioner’s decision to alter the model language in a QDRO often results in the order not satisfying one or more of the requirements of ERISA, REA, and the IRC. From the practitioner’s point of view, the model QDRO language may include benefits and/or provisions not desired or negotiated by the parties. Under those circumstances, the result is not what the practitioner or the court had intended.

Many practitioners erroneously believe that model language will benefit the participant because the plan “looks out” for the interest of the participant. Nothing could be further from reality. In the author’s opinion, model language looks out for the best interest of the plan. It is up to the practitioner to determine whether or not model language is suitable for their client situation and whether or not the benefits awarded in the model QDRO were actually negotiated.

For example, the vast majority of model QDROs are shared interest QDROs. In other words, they include language where employee contingencies and other triggering events dictate the amount of benefits paid to an alternate payee and when those benefits are paid. The most common model language (that is often misunderstood) is when the alternate payee (former spouse) is deemed the surviving spouse for purposes of both the pre-retirement and post-retirement survivor benefits.

Survivor benefits have a cost to the participant in the plan. In

Garrick G. Zielinski, CFP®, CDFAGrant G. Zielinski, CDFA

Gerard G. Zielinski, CDFA

Small Changes Can Cause Significant Differences In Outcome

most situations, if survivor benefit elections are awarded in your QDRO, the participant will receive a reduced benefit at retirement as a result of the plan being ordered to recognize the alternate payee as the surviving spouse. If post-retirement survivor benefits were not negotiated during the settlement, they should not be included in the QDRO draft.

Some plan administrators offer shared interest and independent or separate interest QDRO model language. The practitioner must understand the differences between the two model QDROs and be prepared to alter the model language in order to benefit and/or protect their client’s interest.

For example, most model language forfeits the alternate payee’s awarded benefit to the plan if he or she predeceases the commencement of their benefit. In a shared interest QDRO, those benefits may revert to the participant under this scenario. Since a reduction in the participant’s benefit is required to elect a post-retirement survivor benefit for a former spouse, why wouldn’t you insist that the alternate payee’s benefit revert to the participant if the alternate payee predeceases the commencement of their award? QDRO reversionary interests are the single largest malpractice issue in divorce.

Most plans’ model language provides that benefits are forfeited to the plan in the event of a premature death of the participant and/or alternate payee. Ultimately, forfeitures reduce the cost of the plan to the employer and do nothing for either the participant and/or alternate payee. Under a shared interest QDRO, the plan must allow the benefit to revert to the participant if so stated in the QDRO. Under an independent interest QDRO, it is permissible in many plans to have the benefit revert to the participant in the

event that the alternate payee dies prior to commencing his or her benefit, but you should check with the plan administrator before settling on such language.

In the author’s opinion, plans have grounds to reject such language because it increases the potential cost to the plan. I testified in a malpractice case where the practitioner removed the single sentence in the model QDRO that allowed the award to revert to the participant (his client) if the alternate payee died prior to commencement because it was negotiated that the alternate payee could leave her share to a beneficiary contrary to the terms and conditions of the plan. The alternate payee died prematurely, the alternate payee benefit was forfeited, and an approximate $300,000 value of the pension was lost. The practitioner’s errors and omissions coverage paid the damages.

CASE STUDYRecently, I reviewed a QDRO draft for a non-participant spouse. A “QDRO factory” was used for the draft to save the client’s money. The attorneys representing each party signed off on the QDRO, the judge signed it, and it was submitted to the plan administrator for final approval.

A quick review of the draft indicated that the QDRO was a “model QDRO” word-for-word provided by the plan. I also reviewed the Marital Settlement Agreement, and the language in the agreement was typical. It simply stated that the non-participant spouse was awarded 50 percent of the participant’s benefit in the plan accrued through the date of divorce.

However, the QDRO draft awarded a shared interest to the non-participant spouse using a coverture fraction formula to

determine the award at “maturity,” which is another word for commencement. The model QDRO deemed the alternate payee the “surviving spouse” for purposes of any pre- and post-retirement survivor benefits payable (no cutoff date was indicated). Furthermore, upon the non-participant’s premature death, her awarded share is forfeited to the plan. The QDRO also awarded her 50 percent of all early retirement subsidies defined by the coverture formula and ad hoc increases in the plan benefit formula, if any.

Simply stated, this non-participant spouse received substantially more than she bargained for all at the cost of the participant. Pensions are finite, and any dollar

10 Divorce Financial Analyst Journal | October — December 2016 8 Divorce Financial Analyst Journal | October — December 2016

that is paid to the alternate payee is a dollar not received by the participant. The cost of this model QDRO breaks down like this:

Post-Retirement Survivor Benefit Election: $300 per month reduction in gross benefits payable; present value in excess of $60,000. The participant’s benefit will be reduced by $150 per month, and a 50 percent award to the alternate payee becomes a 45 percent remainder to the participant.

Pre-Retirement Survivor Annuity: Payable the month after the participant’s death regardless of age, in the amount that would have been paid at normal retirement age, and payable for as long as the alternate payee is living. The cost is unknown, but this has the potential to increase the benefits to the non-participant spouse two- to four-fold based on present value.

Alternate Payee’s Premature Death: Benefits are forfeited to the plan. The gross benefit was $3,000 per month. $1,500 per month was awarded to the non-participant spouse. Upon her death, the amount is forfeited to the plan, but could have been paid to the participant. This has a present value in excess of $300,000 (a potential malpractice case).

Early Retirement Subsidies Defined by Coverture Fraction Formula: Costs unknown. However, many plans approach older workers and, as an incentive to get them to retire early, provide subsidized benefits or increased benefits. In this case, the non-participant spouse will receive a proportionate share of those increases.

Ad Hoc Increases in Plan Benefit Formula: Costs unknown. However, plans frequently alter the formula that calculates the monthly benefit. In many circumstances, plans require routine increases, most often through subsequent or future collective bargaining agreements. The non-participant spouse would be entitled to receive a benefit based on the formula in place at retirement, not as of the date of divorce.

Coverture Fraction Formula: So long as the pension plan formula is not linear, a coverture fraction will eat into the benefit accrued after the date of divorce. In other words, if the coverture fraction determines the award at retirement (maturity), the fraction will include creditable service earned after the date of divorce. The fraction result is simply a lower percentage of an increased pension amount. And pensions that are based on a benefit formula tied to years of service and average salary have

a tendency to grow exponentially in the later years of creditable service because our highest earning years are typically the last few years of service.

Nonetheless, in this case, model language greatly benefited the non-participant spouse and made the administration of the QDRO very easy for the plan administrator at a huge potential cost to the participant.

CONCLUSIONHere’s a typical function that we see in the divorce community: a practitioner receives a pension valuation from their expert, and the valuation is based on the accrued benefit of the participant as of a specified date and assumed paid to the participant at their normal retirement age. For a moment, assume that this value is $100,000.

The parties decide they do not want to offset the pension value with other assets and that it should be divided equally by QDRO. So they obtain a model QDRO that includes all the bells and whistles of the above previous scenario.

The present value bargained for is $100,000 and based on a single life annuity paid to the participant over the participant’s lifetime. But the model QDRO goes well beyond bargaining for a single life annuity for the participant. Remember, any dollar paid to the alternate payee is a dollar that is not paid to the participant.

Garrick, Grant, and Gerard Zielinski are the team behind Divorce Financial Solutions, LLC, based in Milwaukee, WI.

They assist clients in making well-informed decisions regarding their financial futures on all financial matters related to divorce.

For more information and to contact them, visit www.divfinsolutions.com.

About the Authors


A customized marital agreement is far more likely to carry out a couple’s financial desires than would impersonal state statutory frameworks.

Paul Simon told us there are “fifty ways to leave your lover.” Only two choices are available, however, for “ways to leave a marriage”—divorce or death. With that in mind, estate planners should not overlook that divorce planning is a component of financial planning.

The purpose of financial planning is to protect money and meet financial goals. Advisors check that clients have property insurance in case of fire and life or disability insurance in case

Marital Agreements Wealth Conservation Tool for Estate Plans

Pam Friedman, CFP®, CDFA



income is no longer there to support loved ones. Advisors also make sure assets are protected from creditors and that investments and succession plans are in line with financial goals and risk tolerance. But what can be done to reduce the financial impact of divorce? Craft a marital agreement.

A marital agreement is simply a tool to achieve a degree of certainty for a client’s financial future by managing the financial risk of divorce. The road to an executed agreement, however, is no easy task. Bringing up the idea of a marital agreement is considered unromantic and, for some, unthinkable. To counter this mindset, advisors need to present the idea as necessary and responsible. Agreements should be thoughtful, comprehensive, and purposeful. Otherwise, the state will prepare one under family law. And those laws will likely fit like an oversized, itchy sweater.

Spearhead the conversation Marital agreements are often viewed as necessary only for the wealthy—as protection for the wealthier spouse. But the agreement should be structured and negotiated to protect the financial (and emotional) future of both bride and groom. This is a much more straightforward task when the couple is happy and supportive than when they are feeling maligned in divorce. Even couples of modest means may need an agreement to provide clarity—especially if the couple purchases assets or real estate together before marriage, plans to live during marriage in a separate-property home, or simply if one or both have separate property they want to keep separate (e.g., a business or employee benefits like stock options).

To adequately assist newlyweds or any other couple, financial and estate planners must educate themselves and their clients about family law as it relates to the division of assets in their state. As a financial analyst working with divorcing individuals, the present author can attest to the fact that most people are surprised by the one-size-fits-all financial terms of income and asset division under family law. Once couples understand the law, they are much more open to the idea of a marital agreement.

Financial goals depend on how the marriage ends Financial goals differ depending on whether the couple is thinking about the risk of divorce or death.

The risk of death is 100 percent, so couples often focus on this in estate plans, believing that their estate plan will be sufficient to protect their assets. Early on in a marriage, one may want to protect a new spouse but may not want to leave one’s entire estate to someone known for only a short time. In a will, a financial or estate planner might suggest terms that include something like the following: Bill could put the residential home he had before marriage into a testamentary trust, naming his new wife, Susan, as a beneficiary with the right to use the home for her lifetime. After her death, the trust would benefit other family members.

For second marriages in particular, another possibility is life insurance. Assuming life insurance options are available, Bill could prepare a new will leaving his estate to his children and agree to purchase life insurance for the benefit of Susan. But what if Bill fails to pay premiums? When that is a concern, the couple would need to add additional terms until both are satisfied with the agreement.

While couples focus on their estate plans, they often overlook the risk of divorce. Who wants to talk about divorce when love is in the air during the early stage of marriage? But like estate planning, couples should and must consider this statistically significant possibility. Bill is fine with leaving a life estate to his new wife if he dies but wants the residential home to remain separate property and not available for division in divorce. He can make these wishes understood in a marital agreement. His new wife, Susan, might want to keep her assets separate as well.

Ideally, marital agreements should be created in conjunction with a solid estate plan. This can be done through planning that includes a marital property agreement, or with a will-based plan and a separate marital property agreement. While they do not have to be completed at the same time, couples should make sure that their attorneys are aware that both exist. It is far too easy to defeat or complicate an estate plan with a marital property agreement that contradicts the terms of that plan, or vice versa. If done correctly, however, the two areas of planning should complement one another and provide clarity—not confusion.

Creating and negotiating a marital agreementPlanning a marital agreement starts with financial planning.


When couples are able to fully disclose their financial resources to each other and agree on how to divide those in the event of a divorce, they enter marriage with security, clarity, and confidence. This is particularly true for older couples who have little or no time to recover financially from a devastating divorce.

The next step in planning a marital agreement is to define goals and create solutions that meet those goals. Often the objective for a non-working or low-wage spouse in case of divorce is to have a place to live (and some cash) while their soon-to-be-ex wants to limit what the law might permit, minimize taxes due to asset division, or avoid asset liquidation. Offering or accepting a specific cash amount that grows with the marriage feels awkward—as if a new spouse is being paid for “service” to the relationship. But a cash amount can work when it is explained in the context of a spouse’s legal right to income or assets—rights one may “give up” under the law in favor of an agreement.

Allocating real estate under a marital agreement, on the other hand, does not have as much of a stigma. But it is typically illiquid and may present other unintended consequences, particularly if the agreement is not updated regularly. One of the first prenuptial agreements the author reviewed generously allocated the future husband’s multimillion-dollar home to his fiancé after several years of marriage. In a meeting, the author discussed with the husband the risk that the home might not sell quickly, leaving the spouse with little or no liquidity during the process of divorce and potentially bankrupting her after. He changed his mind and allocated a specific amount of liquid investments instead.

Finally, the couple must maintain their agreement. Just like a will, couples should keep the marital agreement simple but be encouraged to review it periodically and when major asset sales or purchases occur. This ensures that the intended consequences of the agreement are preserved as the couple’s assets change over time.

Using trusts as part of a marital agreementAsking one’s future spouse to enter into a prenuptial agreement could backfire into a fight over trust in the relationship and the expectation of divorce. In fact, in a 2008 poll, only 41 percent of Americans indicated that they might sign a prenuptial agreement if their partner asked them to sign one. Attorneys hesitate to write

them because they must be “fair,” and fairness is in the eye of the beholder—often a judge in the case of divorce.

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From a financial planning perspective, this line of thinking is misguided. Wills and estate plans are drafted even though they might be challenged. Why not consider pre-or post-marital agreements? With careful and clear preparation, full financial disclosure, education, and upkeep, agreements will hold up.

One alternative to an agreement is an irrevocable trust. Trusts, like domestic asset protection trusts (DAPTs), work mainly when prepared prior to marriage. These trusts are irrevocable, self-settled, and name the settlor as the beneficiary. They also contain a spendthrift clause, which restricts the transferability of a beneficiary’s interests in the trust property. While the extent of protection depends on state law, the benefit is broad creditor protection, which includes protection from a spouse in case of divorce.

The downside of a trust arrangement, when compared to a marital agreement, is a lack of flexibility. If there is a change of heart or a cash need beyond limitations, the trust cannot be unwound. Further, if assets are transferred to an irrevocable trust during marriage as a means of “divorce planning,” a judge can order the trust dissolved or for the settlor to pay half the value of the transferred assets to his or her spouse without dissolving the trust.

One-sided planning ideas like an irrevocable trust can leave a bad taste and can cause more problems than they resolve. A divorcing spouse will likely feel denigrated by the trust’s existence and might not just “go away” without a fight. Advisors should point out the legal, emotional, and financial costs of these structures and encourage disclosure.

The best strategies include the agreement of both spouses and use of trusts only as tools to meet a couple’s financial goals. To do this in a sustainable way, clients should be encouraged to bring their soon-to-be or existing spouses into the conversation.

Advisors can convince couples that planning in case of divorce provides clarity and improves the couple’s confidence in each other and in the marriage. This works best when couples take the time to understand their state’s laws as they relate to the protection of assets and the division of assets in divorce and agree that the scheme works for both of them in case of divorce.

Negotiating an agreementDepending on state law, analysts primarily use projections of future community income (income from separate property or lifestyle analysis) as a basis for discussion and negotiation. By agreeing to a marital budget upfront, couples may avoid the costly fights and some of the emotional strain of divorce.

Example. Bill has a $20 million investment portfolio that earns income of 2 percent. Bill marries Susan, who has no assets prior to marriage. Susan quits her new job as a teacher to help decorate Bill’s new home and travel with him.

Eight years later, Susan wants a divorce. Bill says that they spent their marital income on travel and Susan’s medical bills. Now there is nothing left except his separate property. Susan says that Bill told her that their new $1 million vacation home was a “gift” to her, and she thinks she has the love note from Bill to prove it.


A costly fight ensues. Susan claims Bill wasted all the money on expensive trips for himself. Bill says Susan became depressed and refused to go on the trips they planned. After hundreds of thousands of dollars of legal fees, Susan leaves the marriage with her clothes, some jewelry, and, because they live in Texas, only limited alimony.

Education about the law and clarity about the financial outcome of divorce might have avoided this outcome. Earlier in the marriage when things were good, Bill and Susan could have agreed that their community income was $400,000 and that together they would spend or invest $250,000 per year. As for the other $150,000, they would add $75,000 a year to a trust or an investment account for Susan and $75,000 for Bill. Each could invest or use his or her own account without restriction. If they divorced, the balance of the accounts would transfer to each party.

Of course, couples need to understand how to maintain and update their agreements and investments. Whether trust structures are useful will depend of the couple’s unique situation, state laws, and the need to protect assets or other family members.

ConclusionDivorce is an unwelcome topic at the beginning of or in a happy marriage but it is that happy state of mind that helps both financial planners and attorneys provide clarity. Advisors can bring couples together to create a thoughtful, purposeful plan that protects the future financial lives of both partners. Without such a plan, couples are left with fights over the fairness of the law and the unpredictability of the divorce process.

About the AuthorPam Friedman, CFP®, CDFA, is the founder of Divorce Planning of Austin and a partner at Silicon Hills Wealth Management.

She is the author of I Now Pronounce You Financially Fit: How to Protect Your Money in Marriage and Divorce (River Grove Books, 2015).



Becominga Guidepost Practice-Building Tips from an Expert Who Averages 150 New Clients Each YearGinita Wall, CPA, CFP®, CDFA

As an advisor, you can’t just swoop in at the end of a divorce, hoping that the business becomes yours. From day one in the divorce process, the divorcing woman is facing all kinds of challenges in every part of her life. She is about to make what might be the biggest decisions of her life at the most vulnerable time. She needs direction financially, legally, and emotionally. If she has children, she needs help for them. Your role is to make her transition as smooth as possible and help her avert lifelong disaster. By taking the time to be her guidepost on all fronts, your transition from friendly adviser to financial adviser will be a natural one.

It was 1988 when I co-founded WIFE.org, the Women’s Institute for Financial Education, with Candace Bahr, CDFA, owner of Bahr Investment Group. In 1989, we founded Second Saturday Divorce Workshops as part of our non-profit. I never imagined that Second Saturday would transform the lives of tens of thousands of women—and that my business would grow exponentially as a result. Second Saturday and I are still running strong. We are now national, with more than 130 workshops across the country, tracking toward 500. The remarkable brain-

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trust of CDFA professionals who are leading workshops has served up a very clear profile of what creates success in a CDFA practice.

There are many programs that financial advisors can use to promote their practices. Second Saturday is unique in that it is all about divorce. Second Saturday leaders are not only presenting themselves as a financial resource; they present themselves as a guidepost, the “hub” of all other resources the divorcing client may need.

Here’s how to be a true guidepost for prospective clients:

Establish yourself as the “go to” person. Plenty of times attendees are on the fence about getting divorced. That’s because divorce is a big step, and many people take months, even years, to make

up their mind. Whether I meet them at a workshop or elsewhere, I always assure them that now they have a place to turn with questions. I’m happy to talk to them over the phone, and I never charge them until they come in for advice.

My advice: By making yourself available to those in crisis, not only do they come to you when they are ready to divorce, they refer other potential clients. They also share their experiences with their attorneys, therapists, and other colleagues who in turn will refer clients to you, or even use your services themselves.

Refer, refer, refer. Second Saturday brings together three disciplines (financial, legal, emotional) plus a whole lot of resources. Along with our main speakers, workshops might include other professional guests, such as real estate divorce specialists, career counselors, and people running divorce support groups.

Even with those great resources,

people often need additional referrals. One workshop attendee had huge family wealth, some of which she had lost in the Bernie Madoff Ponzi scheme. She needed a referral to a tax accountant who could carry back the losses to prior years and prove that the source of the resulting refunds was her separate property. I referred her to the right person, and she came back to me as a client to work out the rest of the financial issues of her divorce and protect her inheritance.

My advice: A divorcing individual needs help/referrals in all areas of life. It could be for college planning, marriage counseling, estate planning, or life insurance issues. They may need a referral for a fiduciary if their potential ex-spouse is incapacitated with drug or alcohol issues. There are many things impacted by divorce, and the bottom line is that helping a little bit with everything earns a whole lot of trust.

Be creative.CDFA professionals are trained in divorce work, but if you really want to stand out, think outside the box.

One Second Saturday attendee came for divorce information, but I told her to get married instead. She and her spouse had been living as husband and wife, but it turned out they never bothered to get a license when they married 25 years earlier. Now in divorce they wanted to divide their substantial wealth, but since they were not legally married, any transfer would be a gift subject to gift tax. At my suggestion, they married only for the purpose of dividing the property before they divorced.

One woman wanted to divorce her husband, but neither of them wanted custody of the python snake they had raised in a back bedroom since it was young. I referred her to the zoo and animal rescue and suggested she put it up for adoption on Craigslist. The point is not what ended up happening with the snake; the point is that I gave her time and suggestions.

My advice: Though it isn’t important for you to become well-versed in animal rescue, there are plenty of issues not directly tied to divorce or finance where your creative brainstorming could make a huge difference in someone’s life.

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Be kind. Kindness is always a differentiator. One of our North Carolina Second Saturday leaders shared that he had acquired a $3.2 million client as a referral from a

family law attorney who knew that he did the divorce workshops. Previously, she had referred a few of her clients to him for answers to some basic financial questions. This time, she referred this high asset client to him for money management, primarily, she said, “because you were so kind to answer my other clients’ questions.”

Just the fact that a CDFA professional leads the workshop as a community service is enough to land business. Austin workshop leader Melanie Johnson recently said, “Just this March I got two new multi-million dollar clients who never even attended my divorce workshop. They were looking for an advisor and came across my website. The fact that I present Second Saturday and, as a result, have become well-known in the community was the reason they picked up the phone—and ultimately hired me.”

My advice: As CDFA professionals, we are obviously out to grow our practices. Doing good by giving your time and services to really make a difference in your community will create untold rewards for you at many different levels.

Relish in the rewards of this work.Three hundred fifty dollars is my hourly fee. Not a small sum, but equally rewarding is the satisfaction I get from helping people become powerful as they face some

of the most difficult decisions of their lives. I love hearing the difference I’ve made in their lives, and I’m so grateful that they take the time to let me know how they feel.

Past client Margaret said, “When I was diagnosed with breast cancer, my husband of 35 years told me he ‘wanted someone younger and healthier with whom to share his life.’ I was beyond devastated. Attending your Second Saturday was such a blessing. There was a whole network of people I could turn to, and it helped me feel like I wasn’t alone. It gave me hope for the future.”

Then there’s Anne, who had turned all of her assets over to her abusive, controlling husband. “He questioned everything I did. Eventually, I wasn’t allowed to use the car, and he took away

all access to our money. Meeting Ginita and finding Second Saturday made me realize I am a person, and I have rights. It gave me a whole new perspective on myself.”

Divorce is difficult, but sometimes it allows people to reach deep inside to find power they never knew they had. Meet our benefactor Karen, who made our national rollout of the Second Saturday workshops possible. She recently explained why she did it.

“My husband and I were best friends, and spent almost 40 years together raising a family and building a highly successful business. I was completely blindsided when he announced he had met a girl in a bar while on a business trip abroad and had fallen in love with her—after only 36 hours. My life fell apart and the pain was unbearable. If I had only known about Second Saturday, it would have helped me tremendously just knowing I wasn’t alone in that struggle. I am so grateful to help women everywhere not suffer the way I did.”

My advice: By being a guidepost, you will not only transform your business, you will also transform lives. The ripple effect on families and the community will add purpose to your life and make the “work” part of your job not seem like work at all.

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Ginita Wall, CPA, CFP®, CDFA is a financial adviser who specializes in helping people through life transitions. She has authored eight books and three booklets on personal finance.

Ginita is also the co-founder of the non-profit Women’s Institute for Financial Education (WIFE.

org) and the originator of the acclaimed Second Saturday divorce workshop.

To contact Ginita, email her at [email protected] or call 858.792.0524. For more information on starting a Second Saturday workshop, visit SecondSaturday.com.