Divorce is a significant financial event. The national average cost of divorce likely exceeds $20,000 but for couples who own a business or other substantial assets the cost can be many times larger. The real cost of divorce is not limited to the legal fees but spills over into otherwise avoidable tax liability and poor financial results for years to come. The purpose of financial coaching in divorce is to minimize the negative financial effects by reducing unproductive efforts and speeding up the process of getting back to financial productivity.
Foundations of Coaching – From a financial perspective, divorce is fundamentally a lose/lose proposition. Participants in an emotional and stressful state often make poor financial decisions. The negative effect of divorce is well-demonstrated at the individual level, the firm level and even its negative effect on the health of the national economy. Financial planning industry research shows that divorce often creates financial drag on the individuals for years after the divorce is finished. Many of us have witnessed “war of the roses” type divorces where the participants later regret their actions of the moment. Perhaps the only positive news here, from the financial adviser’s perspective – is that each individual participant in a divorce shares the same basic financial goal as the adviser. We all want to get through the divorce with as little damage as possible and move powerfully forward into a new phase of life. Financial coaching starts by setting specific goals focused on managing the divorce process, holding down costs and achieving tangible benchmarks of financial security. Effective financial coaching minimizes the effects of divorce on the participants, children and family members and reduces the long-term effects of “divorce hangover”.
Expected Results – The best place to start the coaching process is to adapt specific goals focused on managing the divorce process, holding down costs and achieving tangible benchmarks of financial security. Note that these are the expected results of coaching – not the results of the divorce itself (this will evolve later). Every couple’s situation is different, so results are not predictable in advance. Based on casual observations, most couples can expect direct savings of at least $10,000 in divorce costs as a result of participation in a financial coaching process. For couples who own a business or have substantial assets, the benefits of improved financial management of the divorce process are likely to be much larger. Over the longer term, clients can expect to develop a trust-based adviser relationship that enhances the return to financial prosperity for years after the divorce.
Individual Coaching vs. Couples – Coaching involving both spouses together can often be the most effective approach in achieving immediate and substantial financial results. To avoid many of the adverse consequences of a breakup, it is important that this process be attempted early in the separation/divorce process when negative emotions are at relative low point. Over the long-term, however, each individual should develop separate adviser relationships for an effective transition into a new phase of life. The law permits a financial adviser, including a CPA, to work with both spouses however I am convinced from real life experience that it is not a good idea over the long-term. Financial coaching started as a couple may switch to an individual process later. Individual coaching may switch to couples coaching with the consent of both participants. Special adviser disclosure rules apply when the financial adviser is working with both spouses.
Face-to-Face vs. Telephone Coaching – Results seem to be the same for face-to-face vs. telephone coaching due to the nature and focus of this type of work. The adviser will accommodate either option; the choice is up to you. My own practice is primarily based on telephone contact since clients are located throughout the country.
Approaching your spouse – financial coaching during divorce is most effective when suggested by a marriage councilor who is already familiar with your situation, attitudes and general predisposition to the breakup process. This is usually an emotional time for both spouses. Financial coaching is only effective when the individuals can separate their emotional issues from their conversation about financial security. In situations where one spouse is open to peaceful resolution techniques and the other souse is not, immediate additional counseling is suggested.
Interaction with Legal Services – Financial coaching is not legal advice but is designed to advance the legal process of your divorce in the most effective manner. Coaching is designed to significantly reduces the amount of legal work as compared with a traditional divorce and will sometimes conflict with traditional legal methods of handling a marital breakup. The adviser’ s commitment is that you understand the options available and the financial consequences of making those various choices during your divorce. The discussion will include options for mediation and collaborative legal procedures. The choice in selecting the course of action is always up to you.
Interaction with counseling and therapy – Financial coaching is not a substitute for professional therapy. Financial coaching will focus solely on what is best for your financial future; the hard facts and figures that plainly fall far short of your overall well-being and happiness. The adviser’ s commitment is to separate the financial issues from the other issues and focus solely on achieving the best financial outcome. It is highly recommended that you continue to seek help from qualified counselors during the divorce process.
Cost – Every divorce is different but in my own experience the bulk of benefits have typically been achieved in about 10-12 sessions over the course of a year. Sessions might be face-to-face meetings or scheduled telephone conversations. As a very general rule, budget about $3,000 for coaching over the year and plan to demonstrate savings of at least $10,000 to justify the expense of time and money invested in the process. Payment is made on an “as you go” basis and there is no obligation to continue for any specified amount of service.
Business Procedures – An arbitration procedures process is recommended to resolve any issues that may arise with regard to the quality of business relationships and client dispute resolution. Your agreement to engage in financial coaching will preclude certain legal actions and recourse against the adviser. In addition, the adviser may require specific procedures when working with both spouses to ensure fair and open communications.
Confidentiality – The financial adviser is bound by strict standards of conduct regarding confidentiality and privacy. When dealing with both spouses, the adviser is required to disclosure that relationship and specifically define the scope of the coaching engagement in a manner that does not create a conflict of interest.
Getting Started – The earlier that the financial coaching process gets started, the better. When there is financial stress in a marriage, there is absolutely no logical reason to wait for a formal divorce process to begin financial coaching. It is OK and often productive to overlap financial coaching even while marital therapy continues. Individual or couples meeting is recommended as soon as one spouse envisions that the marriage may end.
About the Adviser – Tony Novak, CPA, MBA, MT, has over 25 years experience as an independent financial adviser and is a UAHC-trained volunteer couples group discussion leader, college instructor in financial planning, accredited instructor for continuing education for accountants, attorneys and financial advisers, and one of eight advisers selected by the publishers of Financial Planning as moderator of the largest national online forum for financial advisers. Perhaps more important than professional credentials, Novak’s former life partner is a collaborative divorce attorney. This relationship ended amicably and successfully in 2004. He is now remarried and making it work for the past nine year through often difficult financial circumstances. Novak’s articles on personal financial planning strategies appear in dozens of magazines and newspapers.
This article was originally published in print in 2003 and is updated now for blog distribution.