Divorcing Clients: What Do You Do?

Attempting to be the advisor to two individuals who are in the process of divorce is rife with conflicts since the spouses are now adverse parties with their own interests. Read on …

 

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Divorcing Clients: What Do You Do?

Divorcing Clients: What Do You Do?

If you haven’t already experienced it, you will one day—a married couple client files for divorce. Who stays on as a client? Can you serve both without a conflict? Should you plan ahead for this type of scenario? How can a financial advisor with divorcing clients make a choice?

The dissolution of a marriage is one of life’s most stressful experiences.  For the advisor of a couple undergoing a divorce, it can present its own challenges.

Attempting to be the advisor to two individuals who are in the process of divorce is rife with conflicts since the spouses are now adverse parties with their own interests.  For example, a spouse requests stocks in a joint account to be sold and the proceeds distributed to him or her. Do you tell the other spouse prior to acting on these instructions? If the other spouse expresses his or her objection, which set of instructions do you follow?

There are several ways to avoid the conflicts that can arise from divorce.

  1. Begin each client relationship by specifying in writing who the client is and what will occur in the event of divorce proceedings. For example, you retain the spouse who is named as the client, while asking the other spouse to find his or her own advisor. Alternatively, you can transfer the other spouse to a different advisor in your business; however, the former practice is preferable.
  1. Communicate with both clients the conflicts that exist in representing both of them, agree to share all information equally and let each spouse make the decision about retaining you or finding a new advisor, even if only just for the time period until the divorce is finalized.
  1. Terminate both spouses as clients upon news of the divorce filing.

If you’re a CFP, then you are bound by the CFP Board’s Standards of Professional Conduct with regard to disclosure. Advisors should also be aware of any state regulations that may govern how to work with divorcing clients.

Advisors have an ethical and, in many cases, fiduciary duty to both clients, making preferential treatment to either individual problematic. Advisors should also remember that no privilege exists between an advisor and a client, and consequently should be disclosed.

The central nature of divorce is that it alters existing relationships, and that includes the relationship of an advisor to his or her client.  Advisors should plan for, and be responsive to, these changing circumstances.

See referenced disclosure (2) at http://blog.americanportfolios.com/disclosures/ 

 

About The Author

Tim O’Grady

 

President of Sales and New Business Development 
631.439.4600, ext. 285 

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