Splitting assets in a divorce isn’t usually easy, but it’s often even harder when at least one spouse is a corporate executive.
“The assets they hold and their income structures tend to be more complicated,” says Susan Miller, a managing director and senior wealth advisor with The Colony Group in Wellesley, Mass.
Financial advisors can guide C-suite types through the divorce process. Here are six important ways they can help:
Lay out the asset picture. Top corporate executives tend to have complex compensation structures, which can include restricted stock grants, stock options, private stock, and a deferred-compensation plan, all of which are harder to value than traditional assets, says Ken Van Leeuwen, managing director and founder of Van Leeuwen & Company in Princeton, N.J. These executives also often have complicated investments such as private equity, which can be difficult to value.
While a 50-50 split of assets might seem equitable on its face, it may not be in practice, says Tom Palecek, a founding partner and advisor at Summit Trail Advisors in San Francisco. He offers the example of a couple with $50 million cash and $50 million in private assets. “One of those two might be a far better deal than the other,” if, for instance, the private assets include riskier investments such as crypto or early-stage venture capital holdings. “It’s important not to make financial assumptions without really understanding the value of the assets and the risk,” Palecek says.
Be the quarterback. Bridget Costello, a certified financial planner and wealth advisor at Kayne Anderson Rudnick in Los Angeles, offers to be the point person who coordinates with the divorcing couple’s attorneys and other financial professionals. Often lawyers and CPAs charge hourly, while her fee is based on assets under management, so she can save clients thousands of dollars by taking on a coordinator role at no extra charge.
Her service includes providing divorcing clients with a one-page checklist that includes items like making sure trust documents are updated, accounting for all assets, including retirement accounts, updating beneficiaries, and reviewing life insurance policies.
While many of the checklist items also apply generally to divorcing couples, the stakes can be much higher for executives because of the size and nature of the assets that tend to be involved. Life insurance, especially, is a huge issue since executives tend to have large life insurance policies, often $10 million or $20 million, she says. The divorcing executive may not need the same size policy anymore, and he or she most likely won’t want the current spouse to remain the beneficiary, Costello says.
Serve as a neutral party. Miller often works with divorcing couples to help them come up with a mutually negotiated financial settlement. To become a financial neutral requires mediation training as well as instruction in the collaborative law process. Having this expertise can be valuable for advisors. In this capacity, Miller isn’t working as the financial advisor, but instead works directly with a couple’s financial advisor or advisory team since they are in the best position to understand the financial position. For example, the advisor would be familiar with various vesting schedules, which couples themselves might not know or completely understand. Working as part of the divorce team, and hired by the couple, Miller helps them reach a financial settlement that’s acceptable to both sides.
Help out the “out spouse.” In many cases of executive divorce, one spouse is the main financial contributor and the other may not be involved in the finances or know much about these matters. That’s where advisors can play an important teaching role, says Lisa Ann Sharpe, principal and family law attorney with the Seattle-based law firm Lasher Holzapfel Sperry & Ebberson. She offers the real-life example of a sports figure’s wife who had never paid a bill in her life and had to learn everything from scratch. Among other things, financial advisors helped the woman understand her cash flow needs and how her financial picture might look under different settlement options.
Advisors need to be able to break down this information into understandable nuggets and be prepared to negate spending and savings misperceptions that may exist. One of Sharpe’s divorcing clients, for example, estimated her food budget to be around $400 a month. Based on actual expenses, however, she spent closer to $4,000 a month, Sharpe says.
Rebalance portfolios. In some cases of executive divorce, one or both of the parties may end up with concentrated stock positions, which can be risky. Helping divorcing clients come up with a planned selling and rebalancing or reinvesting strategy is a valuable service advisors can provide, Sharpe says.
Don’t play favorites. In some cases, it may be possible for the advisor to continue working with both spouses during or after the divorce. Much of that depends on how much each spouse trusts the advisor and each other, Sharpe says. In her experience, advisors continue working with both spouses about half the time.
In these cases, advisors need to make it absolutely clear that they’re working independently for both of them, and both spouses need to be comfortable with it, Van Leeuwen says. Advisors may also be able to suggest ways to make certain situations less acrimonious. For instance, Matt Celenza, founder and managing partner of Boulevard Family Wealth, often recommends that divorcing couples with a family foundation involve their adult children in governance matters, if they haven’t already. A husband and wife who are getting divorced or have already split may not be best friends, but if they have to sit with the children on a Zoom call regarding how they are going to disperse money, it’s generally more cordial, he says. “We’ve watched this and it works.”
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Credit: marketwatch.com