"I think the main thing to do is take a step back, slow down and try to work together between spouses as much as possible."
Rick Harkins and his wife, Michelle Cortes-Harkins, founded Harkins Wealth Management in 2008. Primarily a wealth management financial planning practice in the beginning, they began to receive an influx of referrals from divorce attorneys four years ago.
Since then, they have essentially split into two separate practices: One covering the wealth management aspect, the other helping clients manage the many financial nuances of divorce. As the divorce aspect continued to grow, they realized the importance of obtaining the Certified Divorce Financial Analyst designation last year.
Now, they are much better armed to assist divorcing clients navigate the complex world of finances that almost anyone going through a divorce will encounter to some extent. Through years of experience dealing with the financial complications of divorce, Rick and Michelle provide a unique insight into the tricky process of separating finances when marriages come to an end.
What does the CDFA designation entail?
Michelle: You basically take different courses on different aspects of divorce. These include, tax implications, so you really understand that when someone is dividing up assets how taxes going to impact that division of assets. We look at different options for property settlements; how you count different assets and things that might be forgotten when you are dividing assets.
Also, things like pensions are really important, valuating those. Making sure child support is within IRS guidelines and ensuring that you are not characterizing child support or spousal support incorrectly —child support is not taxable, alimony is.
The CDFA is really just diving really deep into these specific issues, looking at case studies, working with specialized software, comparing settlement options.
Rick: It’s really looking at that not just in the present, but looking into the future. The ramifications of the settlement of assets and properties, and what that will look like five, 10, 20 years down the road for each ex-spouse.
Michelle: It’s really easy to put everything on paper, and at first glance say, “OK, we just divide it down the middle.” But then, there might be nuances to that. You might have inherited a vacation property from your grandparents, and they bought it a long time ago, so how much the value has increased over time needs to be considered in the taxes and all the other pieces of the settlement process. It’s always different.
Rick: What we try do is use the software to do various scenarios of the division of assets and how that will look so our clients can have a picture which way they should go depending on how each of those proposals look both long- and short-term.
What are some of the major aspects financial advisors help with in the divorce process?
Michelle: One of the big pieces initially is with the financial affidavit. Depending on the state you are in, the financial affidavit varies, so we try to look at everything, again, counting things that sometimes people might forget — inheritances, properties, pension plans, all of that. We try to make sure that the person filling that out is being very thorough, and understands what kind of asset it is, especially with different kinds of investment accounts.
Rick: I think a big piece of it too is looking at who should keep the home. There is often an emotional tie to the home, or if they have children, whether they should keep the home. A lot of times, people can become basically “house poor” if they can’t really afford the home. They don’t have the cash flow to support the taxes and the upkeep, but they want to stay in the property. We’ll run scenarios to see if it should be sold, what it would look like if it was sold now or five years for now and how it will affect cash flow for each person. It’s a very big topic to look at.
How does this changing financial landscape intersect with the legal aspects?
Rick: We are finding more women that may be the primary breadwinner in the household and it may be the husband taking care of the children. And there’s a lot of emotional aspects to that as well that needs to be dealt with, so what we try to do is really slow down the process a little bit in the beginning and really get an understanding where they’re coming from. Both the man or the woman, because it’s going to have a big impact down the road financially for them.
Michelle: I think it’s good to have a slower process because it’s so emotional. And also, there are some couples who both agree that it is for the best that they file, but then there are a lot of couples where it is a surprise. When it’s a surprise, there is a lot of emotion attached to that. I don’t like people to feel like they are being pressured to hurry and make a decision on a settlement or waive rights. I think you need a balance between getting the divorce done and your own emotional health by making sure you are supported during the process.
Rick: I think it’s very important when it comes to the legal side to realize that we are not attorneys, so obviously, we want to make sure we are working as a team where appropriate for the client. Sometimes we can be engaged directly from the attorney side, or we can be engaged from the client directly as well. It really depends on the need and what the attorney feels — we don’t give legal advice, we are the financial expert whereas the attorney is the legal expert. We feel it is very important to work collaboratively together as a team.
Do you ever help advise both spouses through the divorce process, or just stick with advising one side?
Rick: I’d say it’s a case-by-case basis. If it’s a very amicable divorce or its mediation, then we could work together and be supportive of both clients. Unfortunately, in most cases, we are helping one or the other, but we are very non-biased. We want to provide a clear picture of the financial aspects of the divorce and settlement options, but we don’t sides. We’d just show, “These are the numbers, this is what it looks like, this is what the future looks like and these are your options.” We don’t say, “This is the best option for you, you should pick this one.” We give a variety of scenarios and look at the effects of that, then in conjunction with the attorney, the client can decide what is the best for them in their situation.
What are some of the biggest financial challenges you will see divorcing men face?
Rick: One is debt — making sure that if there is a good amount of debt in the marriage that it is divided properly. Also, when the divorce goes through, I think a lot of times in the courts when it comes to dividing debt, one spouse will say, “OK, I’m taking this debt and you’re taking that debt,” but on a legal side, you need to take your names off that debt and make it legally under one person’s name.
Michelle: That, and the retirement planning aspect is big, structuring your QDRO [Qualified Domestic Relations Order] correctly. Also, making sure that you change beneficiaries. When people are going through the process, even after you’ve divided everything up, it just makes sense to go back and review everything once again to make sure that you’ve taken your spouse off your 401K or retirement plan as the beneficiary. Just the whole piece around financial security for both sides is huge.
Do you have any advice on how to negotiate effectively with a spouse?
Rick: Everyone’s going to be different. From the financial side of it, really just taking a step back and really trying to show a non-biased approach and trying to do that in the forefront of things and not tie that up in the court system — that can be a very costly process. You might have to bring a therapist or something depending on what the needs are. There are so many ramifications that need to be looked at.
Michelle: I think one thing that can help couples, and what often we see, is that one person has been more involved with the finances than the other. I think that makes it hard when it comes down to the division, particularly for the spouse that hasn’t been involved. A big preventative measure, even if you’re not the bill payer, is to just know what accounts you have — what do you have in the lockbox, what do you have in the real estate?
And if your spouse has their own business, that can be even trickier, because usually self-employed folks have a lot more wiggle room. Just knowing what your tax returns look like, keeping copies of it or knowing where those copies are. Because when you have to negotiate the division of assets, if you’re not in the know, it makes it so much harder, and it makes it harder for the people who are helping you.
Do you have any tips for getting around the emotional aspects that can cloud judgment?
Rick: What we try to do right from the beginning is take a step back, try to slow the process down a little bit and really take time to listen to whatever spouse we are working with. It’s obviously a very emotional time, and our job is to really take that emotion out of it a little bit and look at more concrete numbers. Slowing down the process and having an open dialogue with the client we’re working with is very important.
Michelle: I think a lot of times attorneys like when we are there, because we are sort of the expectations manager. If someone comes in and says, “I want the house and I want this much” and they start listing what they want, we are able to show the numbers and say, “Look, this is what that actually will look like financially.” We’re not telling you what to do; we are showing you the consequences. I think sometimes, for both the client and the attorney, it’s a good thing.
You might emotionally want to keep something, like a house, but if you see that you can’t afford it, and there is no way that you can retain that asset, that helps with the emotional piece of it.
Rick I’ve seen it the other way as well, where people are so frustrated and upset and there is so much argument that they just want it to end; they’re just willing to give up everything basically. They really need to look at the ramifications of that — giving away the bank account, the house, the 401K — just because they want it to be over with. They really need to slow down and say, “How is that going to affect me 10 or 15 years for now?”
Any final thoughts from the financial advisor’s viewpoint on what people need to know when getting divorced?
Michelle: I think that if you feel like there are significant assets there that might need to be divided — you can go through the mediation process, and I think many people do and are able to divide things equitably and it all works out OK. But if you have a doubt or you’re not sure, I think it always makes sense to at least get a consultation. Most CDFA’s offer free consultations so that people can see if it makes sense for them.
Rick: I think it’s important that while a financial advisor can do a lot of these things, there’s also the professional designation as a Certified Divorce Financial Analyst. It’s beneficial to have a non-biased approach to looking at the assets and settlement so that it’s not just from the lens of a financial advisor, but from someone who is looking more at the concrete numbers and really specializing in that area — it’s really two different things.
I think the main thing to do is take a step back, slow down and try to work together between spouses as much as possible. Obviously, this saves costs and time. Realize that when you work with a financial professional, we are not there to be on one side or another; we are there to show implications and ramifications going forward.