Can planners survive the breakdown of a couple’s marriage and keep both spouses as clients? Jason Spits investigates.
While most planners would rather avoid anything unpleasant happening to clients the law of averages dictates that at some time an adviser will have to deal with separating or divorcing clients.
And while this sounds like an incredible impost on the adviser’s time and skills, with a basic understanding of what to do an adviser can often get through the process and retain one or both parties as a client.
The first thing to remember says Argyle Partners head of family law Margaret Linden, is that a separation and divorce are different, with the latter being the final legal decree of the former.
Linden says asset splitting doesn’t usually occur at this late stage but rather after the separation process has begun.
It is at this stage that the adviser should make contact with both parties, if both are clients, and ensure that any actions taken are done so with the full knowledge of the other.
Linden says this is very important because the Family Law Court no longer regards assets held in a single name exempt from inclusion in the total assets.
This means they can be split between the parties and can only be sold with consent on both sides.
“Prior to the separation, the planner has acted for both parties, regardless of joint or singular assets. This may continue after a split but there is danger in taking any instructions at this stage as people may be deceptive,” Linden says.
“There is a real need to be clear on instructions and this needs to be in writing so as to ensure the planner is off the hook if a settlement becomes bitter.”
Planners and advisers need to make contact with both parties as soon as they hear about a separation according to Linden, and confirm instructions and restrict information given to each party.
“Never disclose information about the other party,” she says. “As an adviser you may be lulled in, having acted for either or both for many years but in reality you don’t know what these people are like at home.”
Melbourne based planner and Dickson Bonacci managing director Sylvia Dickson says these rules hold true regardless of the nature of the split.
Dickson also says working closely with divorcing clients is much easier if the split is amicable but advisers should refrain from getting involved in any way.
The reason for this according to Dickson is that people do reconcile in the future and it is important that an adviser hasn’t bought into the situation – it can be damaging to business and to reputations.
However director and principal of Wheeler Investment Advisers Brian Quarell says that in one case he was asked by the clients what he thought of their decision. His response resulted in the couple changing their minds.
“I was asked what I thought and I told them I felt there were some issues with ego and selfishness which needed to be resolved. I also questioned whether it was worth sacrificing the relationship for those issues,” Quarrel says.
“They came back with a compromise and stayed together and remained as clients, so in that regard I felt that some counselling was more relevant than financial advice.”
But as a lawyer Linden says it is imperative that advisers do not get actively involved as the skill set needed to deal with a separation and divorce are vastly different than those used in planning.
“Never ever, ever give legal advice or attempt to sort out a dispute. Simply put, few advisers know the law and the host of factors involved in a decision to separate,” Linden says.
“An adviser may even prejudice further action of clients and make recommendations that clients follow which may not have or even receive court backing.”
Linden says the closest advisers should come to the legal process is supplying documents as requested by solicitors or lawyers and not taking sides.
According to Linden the trust of both parties is maintained and the task of working out the division of assets, unhindered by other issues, remains the main focus.
Gunther Doyle partner Geoff Doyle says that even though there may be issues on the personal front, clients do not forget the benefits of financial planning.
“They don’t forget what has been done in the past and as a consequence do not want to undo a portfolio but rather find the best way to split it,” Doyle says.
“We know all the details so we are the most effective person in this regard.”Doyle also says that the influence a planner can apply goes beyond the purely financial and cites a case where clients decided to enact a settlement without legal advice.
“I had to drive the process and encourage them to seek legal assistance as they didn’t want a formal court settlement,” Doyle says.
“We do not have much experience in this area and said it was best to do so, primarily to avoid capital gains tax (CGT) and stamp duty issues.”
Linden says under the Family Law Act CGT will not be levied on any assets involved in a settlement as long as they are kept after the separation by one of the parties.
At the same time, at time of sale the CGT will be calculated from the date of original purchase regardless of what name it was acquired in.
“There is no need to realise assets in which both parties will then pay CGT. It’s important to know this before entering negotiations. So if one of the parties agrees to take on an asset they are aware they will also take on the CGT liability,” Linden says.
The failure to deal with issues like this is also one of the biggest traps an adviser can let a client slip into, as is advising a 50/50 split or siding subconsciously with the party who will receive the most assets.
“Nothing is guaranteed and the future does change people’s mind in regards to these things,” Linden says.
“An adviser can best assist if they encourage the use of legal channels and work on the proviso that no deals will be done unless that is done.”
Dickson says the best ground work for dealing with a divorce comes right at the very start of any client relationship in which both parties should be involved.
“The main reason people approach planners and get them involved in their finances is that the clients themselves don’t know what to do. As a planner you are involved from the outset and should ensure both parties are too,” Dickson says.
“Do this regardless of income because you never know who might actually be making all the decisions.”
