Why Your Financial Specialist Should Be Independent

Over the years, matrimonial lawyers everywhere have increasingly embraced the concept of working with experienced, credentialed professionals who specialize in the financial aspects of divorce. Originally, most of these specialists were Certified Public Accountants and the work was mainly of a forensic nature. Recently, however, we have seen an increase in the involvement of professionals whose background is in the financial planning arena. Today, among other tasks, the planner is often retained to examine the longer-term impact of settlements and answer the client's question: 'Will I be okay financially?' In either case, these individuals are usually retained by one attorney to work as an expert and provide reports or testimony to help obtain a better financial result for the client.

In contrast to this approach, which usually leads to 'dueling experts,' the role of the financial specialist within the collaborative practice model has always been conceived as an independent and neutral one.

Definitions and History

Collaborative practice has come to describe all of the approaches being used today to complete a divorce after the Collaborative Withdrawal Stipulation has been signed by the clients and their attorneys. In recent years, consensus has emerged that collaborative practice can best be described as a continuum. Collaborative law ' the approach in which two attorneys provide all services to clients ' exists at one end of the spectrum; Collaborative divorce ' a full interdisciplinary team comprised of two attorneys, two coaches, a child specialist and a financial specialist ' is at the other. In between these two approaches are models with varying degrees of involvement by the financial specialist and mental health professionals that we have come to think of as the lawyer-driven referral model. Although both attorneys and clients have noted the benefits they have received when deciding to involve a financial specialist in the referral model, the full value of an experienced non-aligned voice has best been realized within the interdisciplinary team model where all professionals are engaged from the start of the case and are working as equals.

In the mid-90s, soon after attorneys embraced the concept of the withdrawal provision, a new spirit of collegiality developed among all professionals working in divorce, and very soon, mental-health professionals and lawyers were working together on cases. (The withdrawal provision is the contract executed by husband, wife and collaborative counsel that they will resolve their dispute without resorting to judicial intervention. This is also called the collaborative contract or the opting-out-of-court agreement.)

An increased focus on the family occurred, and the concept of coaching was developed as the idea of a team emerged. As professionals in this field, we all know that if our clients are not fighting about the children, they are generally fighting about money. Working as a wealth manager for the last 25 years, I have had the opportunity to see how many hundreds of Americans manage their finances; I am sorry to report the state of confusion and disarray that often exists. Many couples, even those who make excellent incomes, fail to save enough, use debt unwisely and never do any financial planning ' or even budgeting.

When such a client is faced with the inevitably increased costs of divorce, he or she may be thrown into financial chaos. That situation initially led this newly created team of lawyers and mental-health professionals to encourage their clients to employ a skilled neutral. This person would provide basic financial services to help them balance income and expenses. However, it quickly became apparent that everyone could benefit from a much higher level of financial expertise on issues such as taxes, investments and retirement accounts, and the role quickly evolved into one fulfilled by skilled and credentialed financial professionals. Right from the outset the potential and power of the role was recognized and the team immediately embraced the idea to the extent that, in the collaborative divorce model, the financial specialist became a full and equal member. Thus, it has always been the norm to have a single independent and neutral financial specialist on a collaborative case.

It is noteworthy that while it is important that all the professionals in a collaborative case adhere to the principles and guidelines of collaborative practice and work together for the benefit of the family, both the attorneys and the mental-health professionals work primarily with one client and therefore have a constituency to represent. (Even a child specialist, who must be neutral with regard to the parents, is there to represent the voice of the children.) The financial specialist is, therefore, the only team member who is truly neutral. What has also become apparent is that working in a neutral capacity has changed the role of the financial specialist. It has moved into areas that far exceed what was originally anticipated, to the point where today the work often transcends financial issues.

So what does it mean to be independent? The American Heritage College Dictionary defines independent as 'free from the influence, guidance or control of another or others; self-reliant.' I believe that, in order to be seen as independent in divorce, the financial specialist must act in a neutral capacity and be perceived as such by all participants. The dictionary defines neutral as 'not aligned with, supporting or favoring either side in a war, dispute, or contest.' Specifically within collaborative practice, neutrality is thought of as being objective, balanced, fair and, most critically, not invested in the outcome.

Practicalities

In order to be able to avoid violating any position of neutrality, it is essential that even the appearance of conflicts of interest be avoided. For that reason, strong consensus exists among experienced financial practitioners that the work with their collaborative clients must be limited to that which is specifically related to the divorce. They may have no prior, concurrent or subsequent business relationship with either client. For example, if an adviser is already working as a client's CPA, he cannot be that client's collaborative financial professional. Similarly, if the couple had chosen a CFP' as their collaborative neutral, should either of the clients be in need of investment services during or after the divorce, it would be inappropriate for them to retain the individual or firm that has acted as their neutral. In addition, a financial specialist must maintain a neutral stance ' not just between the clients, but also between the attorneys and coaches.

Obviously, to be able to practice in this way requires good interpersonal skills and a predisposition to working on teams. Although it may not be immediately apparent, many financial professionals already possess such skills because they are used
to working on teams. For example, accountants and investment advisers are constantly in communication about tax issues relating to their mutual clients. In addition, accountants and planners will often work with their clients' other financial professionals, such as trust officers, estate planning attorneys, loan officers, etc. Of course, being the only neutral professional in any divorce case carries additional responsibilities, and for that reason I have come to the conclusion that mediation training is essential if a financial professional is to realize the full potential of the role.

The Role of the Neutral Financial specialist

Once the Collaborative Stipulation has been signed, the financial specialist starts by gathering all of the financial data directly from the clients. We work with the lawyers to do whatever research and provide whatever supporting documentation they may wish to see. We then assemble a basic report that disseminates all asset/liability and income/expense information, together with a list of all financial issues and concerns from three vantage points: the wife's, the husband's and a third, which we refer to as 'Other.' This last section represents issues that the financial specialist has identified as needing to be addressed, even though they may not have occurred to the couple.

Once agreement has been reached that all of the financial data have been identified, the team then moves toward settlement conferences. This may involve meetings between clients and their attorneys, clients and their coaches, attorney four-ways, and coaching four-ways. Increasingly, meetings to discuss financial issues are five-ways with clients, lawyers and the financial specialist. A recent tendency within the community in which I practice has been for these meetings to have increased participation by team members. For example, many meetings between an individual client and his/her attorney will include the coach, and what in the past would have been a five-way meeting (clients, attorneys, financial specialist), is now usually a seven-way meeting with the coaches attending. In addition, many of these meetings are chaired by the financial professional because, as a neutral, he or she is best positioned to help move the proceedings toward consensus.

Cost

At this point, it is probably appropriate to address the issue of cost. Most attorneys unfamiliar with collaborative team practice are concerned that more professionals must necessarily equate to a greater total cost. Although I do not think the collaborative method should be presented as a cheaper way of divorcing, I do believe it can be extremely cost-efficient. Team meetings, although expensive, tend to be very productive and, therefore, fewer should be required to reach settlement. Moreover, having one neutral venue for the clients to assemble all of their financial data avoids much of the expense of financial discovery.

Many of the other savings that occur, however, are to be measured in emotional, rather than monetary, cost. To say that divorce is a naturally divisive event is beyond a truism, but I have found from the financial standpoint that it will inevitably bring up issues in the clients' relationship that, on a very basic level, they may never have had to face before. This is because during the marriage, any event that benefited or hurt one spouse financially had the same or a similar impact on the other. Now, in divorce, every dollar that goes to one client is at the expense of the other. What a good collaborative team can do is provide the clients all the necessary information and support to enable them to make informed decisions about the future allocation of their limited resources.

Contrast that approach with what can happen in an adversarial case: both sides hiring experts to take the most extreme position that can be justified in order to obtain the greatest slice of the pie. Even when this approach results in a superior financial outcome for one side, it can often prove to be a pyrrhic victory, with costs that are huge from an emotional standpoint. Many couples who, when they chose to divorce were simply tired and wanted out, wind up hating each other at the end of countless hours of arguing about who gets what. Some of the wounds from these battles never heal. Furthermore, if children are involved, the ability of the couple to co-parent effectively after the divorce can be disrupted or even destroyed.

The Challenges of Teamwork

Obviously, if attorneys are going to embrace the concept of working with a neutral and independent financial professional, they must become comfortable with a change in the relationship. In the past, the attorney would bring the client and would generally engage his or her financial colleagues, having already developed a strategy of how they want to approach the case and what specific role we would play. Sometimes we would be retained by the attorney to be used on an as-needed basis and would never even meet our clients. Finally, the attorney would direct and filter our work product.

As we work together and embrace this new dynamic, it requires both professions to unlearn this past. When working with a neutral financial professional, lawyers must be willing to forgo some of the control they enjoy in a traditional adversarial case. That only can occur when the attorney has confidence in his or her financial colleague. Although true trust can only develop after successful casework, a careful screening of potential financial candidates is the first step. (In collaborative practice, we recommend the financial professional hold either a CFP' or a CPA and have attended both mediation and collaborative training.) For the financial professional, the challenge is often embracing this new equal role and the concept of the 'strong' neutral.

Conclusion

I acknowledge that this new approach where the legal and financial professions form teams to resolve disputes does not come without risks. Questions of ethics, protocols and styles need to be addressed and resolved for successful work to occur. The payoff, however, can be huge ' not just in terms of improved outcomes and client satisfaction, but also in increased job satisfaction for everyone involved.

Mark C. Hill, CFP', CDFA, is Managing Director of Pacific Wealth Management LLC and Pacific Divorce Management in San Diego, CA. He is the current treasurer of the International Academy of Collaborative Professionals, and immediate past president of the Collaborative Family Law Group of San Diego. He can be reached at [email protected].

Over the years, matrimonial lawyers everywhere have increasingly embraced the concept of working with experienced, credentialed professionals who specialize in the financial aspects of divorce. Originally, most of these specialists were Certified Public Accountants and the work was mainly of a forensic nature. Recently, however, we have seen an increase in the involvement of professionals whose background is in the financial planning arena. Today, among other tasks, the planner is often retained to examine the longer-term impact of settlements and answer the client's question: 'Will I be okay financially?' In either case, these individuals are usually retained by one attorney to work as an expert and provide reports or testimony to help obtain a better financial result for the client.

In contrast to this approach, which usually leads to 'dueling experts,' the role of the financial specialist within the collaborative practice model has always been conceived as an independent and neutral one.

Definitions and History

Collaborative practice has come to describe all of the approaches being used today to complete a divorce after the Collaborative Withdrawal Stipulation has been signed by the clients and their attorneys. In recent years, consensus has emerged that collaborative practice can best be described as a continuum. Collaborative law ' the approach in which two attorneys provide all services to clients ' exists at one end of the spectrum; Collaborative divorce ' a full interdisciplinary team comprised of two attorneys, two coaches, a child specialist and a financial specialist ' is at the other. In between these two approaches are models with varying degrees of involvement by the financial specialist and mental health professionals that we have come to think of as the lawyer-driven referral model. Although both attorneys and clients have noted the benefits they have received when deciding to involve a financial specialist in the referral model, the full value of an experienced non-aligned voice has best been realized within the interdisciplinary team model where all professionals are engaged from the start of the case and are working as equals.

In the mid-90s, soon after attorneys embraced the concept of the withdrawal provision, a new spirit of collegiality developed among all professionals working in divorce, and very soon, mental-health professionals and lawyers were working together on cases. (The withdrawal provision is the contract executed by husband, wife and collaborative counsel that they will resolve their dispute without resorting to judicial intervention. This is also called the collaborative contract or the opting-out-of-court agreement.)

An increased focus on the family occurred, and the concept of coaching was developed as the idea of a team emerged. As professionals in this field, we all know that if our clients are not fighting about the children, they are generally fighting about money. Working as a wealth manager for the last 25 years, I have had the opportunity to see how many hundreds of Americans manage their finances; I am sorry to report the state of confusion and disarray that often exists. Many couples, even those who make excellent incomes, fail to save enough, use debt unwisely and never do any financial planning ' or even budgeting.

When such a client is faced with the inevitably increased costs of divorce, he or she may be thrown into financial chaos. That situation initially led this newly created team of lawyers and mental-health professionals to encourage their clients to employ a skilled neutral. This person would provide basic financial services to help them balance income and expenses. However, it quickly became apparent that everyone could benefit from a much higher level of financial expertise on issues such as taxes, investments and retirement accounts, and the role quickly evolved into one fulfilled by skilled and credentialed financial professionals. Right from the outset the potential and power of the role was recognized and the team immediately embraced the idea to the extent that, in the collaborative divorce model, the financial specialist became a full and equal member. Thus, it has always been the norm to have a single independent and neutral financial specialist on a collaborative case.

It is noteworthy that while it is important that all the professionals in a collaborative case adhere to the principles and guidelines of collaborative practice and work together for the benefit of the family, both the attorneys and the mental-health professionals work primarily with one client and therefore have a constituency to represent. (Even a child specialist, who must be neutral with regard to the parents, is there to represent the voice of the children.) The financial specialist is, therefore, the only team member who is truly neutral. What has also become apparent is that working in a neutral capacity has changed the role of the financial specialist. It has moved into areas that far exceed what was originally anticipated, to the point where today the work often transcends financial issues.

So what does it mean to be independent? The American Heritage College Dictionary defines independent as 'free from the influence, guidance or control of another or others; self-reliant.' I believe that, in order to be seen as independent in divorce, the financial specialist must act in a neutral capacity and be perceived as such by all participants. The dictionary defines neutral as 'not aligned with, supporting or favoring either side in a war, dispute, or contest.' Specifically within collaborative practice, neutrality is thought of as being objective, balanced, fair and, most critically, not invested in the outcome.

Practicalities

In order to be able to avoid violating any position of neutrality, it is essential that even the appearance of conflicts of interest be avoided. For that reason, strong consensus exists among experienced financial practitioners that the work with their collaborative clients must be limited to that which is specifically related to the divorce. They may have no prior, concurrent or subsequent business relationship with either client. For example, if an adviser is already working as a client's CPA, he cannot be that client's collaborative financial professional. Similarly, if the couple had chosen a CFP' as their collaborative neutral, should either of the clients be in need of investment services during or after the divorce, it would be inappropriate for them to retain the individual or firm that has acted as their neutral. In addition, a financial specialist must maintain a neutral stance ' not just between the clients, but also between the attorneys and coaches.

Obviously, to be able to practice in this way requires good interpersonal skills and a predisposition to working on teams. Although it may not be immediately apparent, many financial professionals already possess such skills because they are used
to working on teams. For example, accountants and investment advisers are constantly in communication about tax issues relating to their mutual clients. In addition, accountants and planners will often work with their clients' other financial professionals, such as trust officers, estate planning attorneys, loan officers, etc. Of course, being the only neutral professional in any divorce case carries additional responsibilities, and for that reason I have come to the conclusion that mediation training is essential if a financial professional is to realize the full potential of the role.

The Role of the Neutral Financial specialist

Once the Collaborative Stipulation has been signed, the financial specialist starts by gathering all of the financial data directly from the clients. We work with the lawyers to do whatever research and provide whatever supporting documentation they may wish to see. We then assemble a basic report that disseminates all asset/liability and income/expense information, together with a list of all financial issues and concerns from three vantage points: the wife's, the husband's and a third, which we refer to as 'Other.' This last section represents issues that the financial specialist has identified as needing to be addressed, even though they may not have occurred to the couple.

Once agreement has been reached that all of the financial data have been identified, the team then moves toward settlement conferences. This may involve meetings between clients and their attorneys, clients and their coaches, attorney four-ways, and coaching four-ways. Increasingly, meetings to discuss financial issues are five-ways with clients, lawyers and the financial specialist. A recent tendency within the community in which I practice has been for these meetings to have increased participation by team members. For example, many meetings between an individual client and his/her attorney will include the coach, and what in the past would have been a five-way meeting (clients, attorneys, financial specialist), is now usually a seven-way meeting with the coaches attending. In addition, many of these meetings are chaired by the financial professional because, as a neutral, he or she is best positioned to help move the proceedings toward consensus.

Cost

At this point, it is probably appropriate to address the issue of cost. Most attorneys unfamiliar with collaborative team practice are concerned that more professionals must necessarily equate to a greater total cost. Although I do not think the collaborative method should be presented as a cheaper way of divorcing, I do believe it can be extremely cost-efficient. Team meetings, although expensive, tend to be very productive and, therefore, fewer should be required to reach settlement. Moreover, having one neutral venue for the clients to assemble all of their financial data avoids much of the expense of financial discovery.

Many of the other savings that occur, however, are to be measured in emotional, rather than monetary, cost. To say that divorce is a naturally divisive event is beyond a truism, but I have found from the financial standpoint that it will inevitably bring up issues in the clients' relationship that, on a very basic level, they may never have had to face before. This is because during the marriage, any event that benefited or hurt one spouse financially had the same or a similar impact on the other. Now, in divorce, every dollar that goes to one client is at the expense of the other. What a good collaborative team can do is provide the clients all the necessary information and support to enable them to make informed decisions about the future allocation of their limited resources.

Contrast that approach with what can happen in an adversarial case: both sides hiring experts to take the most extreme position that can be justified in order to obtain the greatest slice of the pie. Even when this approach results in a superior financial outcome for one side, it can often prove to be a pyrrhic victory, with costs that are huge from an emotional standpoint. Many couples who, when they chose to divorce were simply tired and wanted out, wind up hating each other at the end of countless hours of arguing about who gets what. Some of the wounds from these battles never heal. Furthermore, if children are involved, the ability of the couple to co-parent effectively after the divorce can be disrupted or even destroyed.

The Challenges of Teamwork

Obviously, if attorneys are going to embrace the concept of working with a neutral and independent financial professional, they must become comfortable with a change in the relationship. In the past, the attorney would bring the client and would generally engage his or her financial colleagues, having already developed a strategy of how they want to approach the case and what specific role we would play. Sometimes we would be retained by the attorney to be used on an as-needed basis and would never even meet our clients. Finally, the attorney would direct and filter our work product.

As we work together and embrace this new dynamic, it requires both professions to unlearn this past. When working with a neutral financial professional, lawyers must be willing to forgo some of the control they enjoy in a traditional adversarial case. That only can occur when the attorney has confidence in his or her financial colleague. Although true trust can only develop after successful casework, a careful screening of potential financial candidates is the first step. (In collaborative practice, we recommend the financial professional hold either a CFP' or a CPA and have attended both mediation and collaborative training.) For the financial professional, the challenge is often embracing this new equal role and the concept of the 'strong' neutral.

Conclusion

I acknowledge that this new approach where the legal and financial professions form teams to resolve disputes does not come without risks. Questions of ethics, protocols and styles need to be addressed and resolved for successful work to occur. The payoff, however, can be huge ' not just in terms of improved outcomes and client satisfaction, but also in increased job satisfaction for everyone involved.

Mark C. Hill, CFP', CDFA, is Managing Director of Pacific Wealth Management LLC and Pacific Divorce Management in San Diego, CA. He is the current treasurer of the International Academy of Collaborative Professionals, and immediate past president of the Collaborative Family Law Group of San Diego. He can be reached at [email protected].