How a Creative Financial Advisor Can Keep You Out of Divorce Court

I love puzzles and being a highly analytical person, it probably comes as no surprise I’m also a Certified Divorce Financial Analyst (CDFA?). Each time a client walks through my door, they represent a new puzzle to solve. Sometimes the puzzles are relatively simple. We just need to dot a few I’s and cross a few T’s. In other cases, the puzzles are complex and require differing levels of creativity. This is where I thrive and where CDFAs can make the most substantial positive impact for their clients. The right creative solution can resolve issues for couples, keeping them out of court and saving them loads of money and headaches. And most importantly, it allows them to move on with their lives more quickly.

Why a Creative CDFA Matters

Even relatively straightforward divorces aren’t always as simple as they seem. A good number of divorcing couples are willing to split their assets 50/50, but what does this actually look like? Let’s say Jane wants to keep the couple’s SUV, which is currently appraised at $50,000. Joe wants to keep his investment account, which is currently worth $50,000. Is this a fair tradeoff?

Well, not exactly. Jane’s SUV will depreciate each year. She’ll also need to cover fuel, maintenance, and insurance costs. Meanwhile, Joe’s investments are likely to keep growing over time. But he’ll also need to pay taxes on his capital gains. But Joe will probably argue his investments could lose value if the stock market falls and, therefore, Jane is getting the better deal.

So now you can see neither of these assets is truly worth $50,000. A creative CDFA will help clients understand the fuller picture behind each asset and guide clients to divide assets in a way that is truly fair and equitable.

(Assessing the true value of an asset is a tricky problem in and of itself. I’ll be writing more on this topic soon!)

How Much Is That House Really Worth?

Here is a real example of a creative solution I recently worked on with a client. As you may have noticed, home prices across the country are skyrocketing. This is especially true here in Austin where my business is located.

I recently worked with a client whose husband wanted to keep their home. To do this, he needed to buy out my client, which meant paying her half of the value of the home. The home was appraised for $1.4 million during the July appraisal which was received in October of 2020. However, the settlement negotiations didn’t start until February of 2021. In the seven months between the appraisal and the settlement negotiations, the home’s value shot up. When my client commissioned a market analysis, it showed the house was worth $2.2 million.

Unsurprisingly, the husband was not too happy about this. He was prepared to pay $700,000 to my client, which was half of the original appraisal value. My client and I believed she was owed $1,100,000, or half of the home’s current value.

What should the couple do? Should they go to court with attorneys who would charge each client over $500 an hour plus the cost of any associates??Or could they come to a fair agreement that worked for both of them? It was a tricky puzzle, indeed. One of the great lessons of life I’ve learned, however, is most puzzles have multiple solutions and it’s critical to pick the right one for a given situation.

In getting to know this couple, I discovered that the husband was set to receive a large inheritance from a family member. After consulting with my client, we made an offer to the husband. We asked him to pay my client $700,000 upfront and agree to pay an additional $400,000 within five years. Since the inheritance was likely to be received in that time frame, the husband could use money from the inheritance to pay my client. Or, if the money didn’t come through, he’d be forced to sell the house.

After reviewing the offer, the husband agreed. It was a win-win-win. The husband kept the house he loved and my client would eventually receive the full amount she was owed. And both clients stayed out of court.

Creativity to Support a Client’s Best Interest

Why is it so important for CDFAs to be creative? The simple answer is our goal is to help clients keep as many assets as possible when the divorce process is complete. We also care about keeping family relationships as strong as possible. These objectives encourage us to be more collaborative rather than combative. This is why it is very important for us to get to know the circumstances of the other spouse and to devise solutions that will appeal to everyone involved.

I work with many female clients and one thing that really drives me is the fact women tend to live longer on average than men. My female clients can’t afford to spend their savings on long, drawn-out court battles or to make expensive concessions. This is where creative solutions can make a huge difference in a client’s quality of life after a divorce.

If you are considering divorce, I strongly suggest consulting with a Certified Divorce Financial Analyst, (CDFA?). Your CDFA may offer creative solutions that will keep you out of court and help you maintain a better post-divorce relationship with your ex-spouse after the divorce is complete. This is really important if you are raising children together. If you are a CDFA yourself or a financial advisor, I encourage you to be creative when faced with a complex case. Learn about your clients and look beyond the obvious solutions. Think about the full value and meaning of each asset and consider solutions that will appeal to both your client and their spouse. And remember, most puzzles have multiple solutions. Your creativity will most likely help your client start their post-divorce life on the best financial footing possible.

Melanie Johnson is a Certified Divorce Financial Analyst (CDFA?) and serves as the National Director of Second Saturday Divorce Workshops. Since 2006, Melanie has continuously led a Second Saturday Divorce Workshop in her home city of Austin. Melanie has owned Divorce Financial Solutions since 2004 and works as an investment advisor for Beck Capital Management, LLC.