MF: After I have been appointed as a client’s solicitor and met with them myself, I suggest setting up a face-to-face meeting between the client, the financial planner and me. I think that really helps build up a rapport with everyone. Clients tend to be in quite a vulnerable position in their lives – they need to know that they can trust and connect with the people who are working for them. They need to be able to talk to them easily and ask them any sort of question. Something they often say is ‘I feel like I’m asking silly questions’ or ‘I don’t want to sound stupid’ when in actual fact, as soon as they meet a financial planner, they realise that he or she is just a normal person whom they can talk to and who is never going to make them feel stupid.
TM: At this meeting, I’ll start pulling together the matrimonial assets schedule and the income and expenditure information. That’s a question of finding out exactly what they’ve got and their needs. It often becomes an education in finance. Take the topic of pensions for example. A lot of clients don’t understand what a defined benefits pension scheme or a defined contributions pension scheme is and what they can do with them – and why would they? If they don’t work in the financial industry, these schemes and investments can be extremely confusing. It’s my job to explain exactly what they are.
MF: Traditionally, solicitors tended to attempt to do this themselves, but as they are not financial experts, they could not advise a client in the same way as a financial planner. They would work out a financial settlement or put the case through the courts and then advise their clients to take independent financial advice. This has really changed over the last five to 10 years in particular and a financial planner can be really beneficial in these cases if they are brought in at as early a stage as possible.
A client who is fully aware of what their options are and understands various pieces of financial terminology is likely to make better decisions than someone who doesn’t.
MF: One of the things that people often experience when they’re first considering divorce is a lack of control over their life and a lack of certainty over what the future holds. In general, they feel that their life now is completely different from what they were expecting it to look like. People often say to me that they feel they are in a spiral of despair.
I help people to understand what their rights and options are. If they’ve been in a relationship where there’s been a power imbalance, they might feel that they have to do what the other party has told them to. At the initial stages, it’s about making sure people know that they are in control of the process and that they have a number of options. You can physically see the difference in people when they hear this and they realise the divorce is not something that is just going to ‘happen’ to them. In fact, they are going to be consulted every step of the way and they will have some ability to control the outcome at the end.
TM: In a divorce, there’s normally one person who has made the decision that it’s over and they’ve planned and thought about a lot of things. You’ve then got the other person who has often had their head in the sand and it comes completely out of the blue. And for them it’s complete devastation. I always think with divorce, having been through it myself, it feels as though you’ve had your head taken off, put on backwards and you’re then expected to walk forwards. During the emotional confusion, people often can’t hold a train of thought.
In that initial meeting, what I have to be really conscious of is that people can’t take in a lot of information, so I need to give them enough information so that they understand but at the same time, they’re not overloaded. The financial part is really useful at this stage because we’re talking about facts and figures, so I can take some of that emotional part out.
That’s where we really differ from the role of a solicitor. Solicitors are great at explaining the legal side but while they might have a long meeting and ask emotionally charged questions like 'how do you plan to raise your children as a single parent?' We bring it back round to facts and figures.
TM: By using cashflow modelling. We talk about income and expenditure and how a client’s finances could look in the future. A financial planner puts context around a settlement. On paper, a figure is just that – a number. Essentially, it means nothing. We take this figure along with details of any other assets to help the client answer questions such as:
By answering these questions, it will also help to establish if a client needs a higher settlement. Take for instance a client who is the primary carer of children who are at primary school. It may be impractical for them to work full-time and a higher settlement than the usual fifty-fifty split might be required.
MF: Initially, our role is to discuss the different options available to the client, even in terms of the process that they use. Some people come in thinking ‘I’m separating, so I’ve got to go to court and it’s going to be a horrible, messy battle’. Actually, very few of our cases now end up in court, because we actively try to find an alternative way to deal with their dispute. One of the first jobs we have to do is work out which of the methods of dispute resolution suit our clients best. Are we looking at mediation or a collaborative process, in which they sign a contract to say that they won’t go to court and will disclose details of all of their assets or traditional legal negotiations between solicitors? A financial planner can be involved in any of those scenarios, but it’s really the solicitor, after consultation with their client, that has to work out which way is best for that particular client.
MF: The majority of clients are not aware of the range of options available to them and because of this, most of them fear the worst. They come in thinking ‘it’s going to be my solicitor against theirs’ and it’s very much an acrimonious view that they have. Many of them are relieved to hear that there are alternatives available. In a collaborative approach, all of the professionals involved, including the financial planner, also sign up to the agreement that the case will not go court. Everyone makes a real commitment to resolve matters amicably, by agreement and with respect for each other.
TM: I would agree that the majority of clients aren’t aware that I can work with their solicitor and the benefits of me doing so. Having said that, I’ve had a couple of my existing clients who have recently come to me before they’ve gone to a solicitor. They know they need to appoint a solicitor to represent them, but they want my input too.
These clients are thinking of separating but haven’t left the home or relationship at this stage. Often, the other party doesn’t even know. They have asked me to talk them through what they need to do and if there are any plans they need to put in place before they separate. When it comes to divorce, people are really scared of their financial future. Some of these people don’t understand the costs of running a house. They’ll ask, ‘if I get a flat on my own, what kind of bills would I have to pay?’ or ‘what’s an average expenditure for someone like me?’ That’s a difficult one, but it’s then a case of understanding them and their objectives better. If they are a client who I have looked after for a long time, I’ve got a pretty good idea already of their income and lifestyle, but if they’re relatively new to me, I will get to know more about them.
I always say the finances should not hold you back from making the decision if the marriage is over and I go over the things you need to think about.
MF: Looking at the traditional divorce process first in which there are legal negotiations between solicitors (a lot of which is in writing), financial planners tend to focus on explaining things like pension sharing orders and the options that are available around pensions, and the tax efficiency of a proposed settlement structure.
When it comes to dividing pensions efficiently, a financial planner is not only beneficial but absolutely essential. They’re also extremely helpful when we’ve got to the stage where we’ve reached financial disclosure, so both parties know what the other has. Then, we look at how we might divide those assets fairly between the parties. The structure of that settlement is something that a client may want to run past a financial planner. What looks perfectly sensible to us might be viewed differently by someone who really understands the difference between a defined benefit and defined contribution pension scheme, for example. It’s likely that they will see values in areas that we won’t.
In terms of the collaborative process, financial planners are much more involved from day one. In these cases, the financial disclosure would be given to the financial planner directly, so they have the full details of each person’s assets. They will have meetings with both parties, both solicitors and sometimes another professional like a family consultant. We work very much as part of a team and everyone has their points to make and at every meeting, everyone will look at it from a slightly different perspective.
That’s where we can give added value to clients by working together because they’re getting a holistic view of their legal and financial affairs.
TM: That’s absolutely true. I’ve worked on a number of collaborative divorces where I act as a financial neutral. This means I work as a financial planner for both parties. You sit down with both sides and say ‘this is how your cashflow analysis looks going forward and this is how your one looks’. You can get them to a position where they listen to each other, which helps them understand each other and the family needs in terms of facts and figures. It’s about providing options and getting them to agree on a solution, it’s a really good approach and a far less contentious process.
Marika and I have also worked together on cases that have followed the traditional divorce process. Sadly, some of these have involved financial abuse and major power imbalances during the course of the marriage, leaving one party feeling particularly vulnerable and with little or no understanding of their financial position. Often, what these clients need is support, which gives them the confidence to make the right decisions going forward. Having a financial planner and a solicitor gives them a team who fight for them every step of the way. My job is to make people feel in control of their finances and I have really long relationships with a lot of my divorce clients. I have ongoing reviews with them to check they have enough money in cash and that they are building up enough in their pension for their retirement.
MF: I think where some solicitors have made mistakes in the past is getting financial planners involved too late on. They’ve allowed their clients to commit themselves to a structure which perhaps isn’t the best one for them in the long term. For example, someone insists that they want the matrimonial home. In terms of their legal rights, we can justify them retaining the home because perhaps their spouse has a bigger pension pot than them, so we will offset their claim against the pension in exchange for the house. But this often is the wrong thing to do from an affordability point of view. If a financial planner is brought in at an earlier stage, they can go through a cashflow analysis with the client to show them that they might be better off selling the house and realising capital from downsizing. As Taina said before, a financial planner can put the proposed settlement into context and make sure what the client agrees to is in their long-term best interests.
TM: In my opinion, I think some clients have made the mistake of not working with a financial planner as well as a solicitor because they don’t want to incur any additional fees. However, if you have a financial planner involved, yes, there are going to be some additional costs but it can get you a much better settlement because you’re asking for a fair settlement.
For instance, we can support legal claims for more than the standard 50% of the matrimonial pot, and we can show why we’ve asked for it. The detail behind our request is huge. Using cashflow modelling, we’ll show mortgage costs, school fees, how much it is to run a car, what the household bills are plus any other expenditure. It’s very much evidence based and is not just a finger in the wind. The solicitor can submit this information as evidence and if the case went to court, we can be called as an expert witness using the information. In the past, I’ve had cases like this settle very quickly because there is no disputing the facts and figures I’ve presented.
MF: It’s really clear to see that there’s a strong argument for both professionals working together to make sure that the clients are aware of all of their rights and options, and that they make the best informed choices for their future.
At Tilney we have financial planners who are experienced at helping those going through divorce. Please get in touch to find out how we can help. You can call us on 020 7189 2400 or book a no-obligation consultation.
We also have further information on the financial implications of divorce.