Helping clients recover from midlife divorce

Divorce at any stage of life can be financially stressful, regardless of one’s age, family status, or the length of the marriage. However, as many financial planners can attest, when a couple divorces after many years of marriage, particularly when they have multiple children together who are still living at home, it’s more likely that one or both partners will be starting from scratch or with very little progress made toward their individual journeys to financial independence.

This is especially true when one or both members of the couple made career trade-offs to be more present with child-rearing, such as limiting work to part-time or forgoing career advancement because of the demands of a busy household. After the divorce, the conditions that informed these career-related decisions may still exist, but the need to increase earning capacity becomes more critical.

In these circumstances, recently divorced clients may be unable to prioritize becoming financially independent as quickly as they’d like. They also may be unable to address the “bigger picture” financial priorities, such as saving for retirement or paying down debt.

Clients often turn to trusted advisers, such as CPA financial planners, for guidance on what steps to take to start. Clients may not necessarily be able to engage in an in-depth financial planning process when they first approach you, so a triage may be the best way to establish trust and form an ongoing relationship.

This article outlines some challenges advisers may encounter in taking those first steps with a client and guidance on how to best work with individuals who may feel underequipped in beginning their journey to financial security.

THE EMOTIONAL SIDE OF STARTING OVER FINANCIALLY AFTER MIDLIFE DIVORCE

First, recognize that conversations you’ll have when beginning the engagement will likely be only about 50% about the numbers. The rest will be about navigating the emotions surrounding getting a late start to saving and dealing with divorce. Consider adopting more of a coaching role here than that of an adviser or manager.

As a financial coach, it is not your responsibility to provide therapy to your clients; however, being aware of existing emotions can help you be more effective in your guidance. Those feelings may include embarrassment, fear, shame, guilt, anger, frustration, and just plain confusion.

Common fears that may come up include embarrassment at having let this slide for so long, worry about not making it financially, looking silly, being talked down to or scolded, being scammed, losing housing, and, most legitimately, hearing bad news. You may also encounter expressions of shame, which sound like, “I shouldn’t have let this happen,” “I should have been more involved in the finances, but I let my spouse handle all of it,” “I should know more about this,” “I should have been thinking about this a lot sooner,” or “I’m worried I’ve destroyed my whole future.”

As you share insights into what actions they might take to better secure their financial future, your client may realize that they will have to make trade-offs or tell their kids “no” on certain previously affordable things. This can trigger guilt, as parents typically want to shield their children from further loss or change after the divorce.

HOW TO HELP WITH THESE DISCOURAGING MONEY STORIES

First, avoid the temptation to correct or argue when these statements first arise. Rather than reassuring the client that they are not in trouble or that they haven’t destroyed their future or that they won’t have to make trade-offs (which can come across as demeaning or bypassing without facts to back this up), start by getting on the same level. Avoid participating in accusations of the ex, though. It can be tempting to commiserate this way as a means to connect. But this direction can perpetuate a hostile atmosphere, which can get in the way of any need to deliver challenging news in an empowering way.

It’s a good idea to validate the feelings and expressions of fear, shame, anger, and guilt as normal; avoid making that the focus of your meeting. Acknowledge those feelings as understandable, then quickly offer assurance that the client is in capable, trustworthy hands and that you’re in it with them. A sense of “We’ve got this” can begin the journey to empowerment so much more than denying that the feelings should exist in the first place.

Next, be honest. Point out that it might not look pretty initially and acknowledge that they may have to make tough decisions and update some of their plans. Together, you may find that they may have to work longer than previously planned, or they may have to move to an area with a lower cost of living, or they may not be able to offer the same financial support to younger children that was available to older siblings before the divorce.

Lean on your expertise as a numbers person by laying out the expectation that the numbers will show where the client is now so you can run scenarios together to see which changes, if any, will have the most impact.

GETTING TO WORK ON THE NEXT STEPS, FINANCIALLY

When getting into the numbers, be mindful of the need to start with a baseline by accurately assessing where the client is today with income, balance sheet, and net worth statements. This may initially provide a grim picture, which is important to express with empathy. Help the client to avoid getting overwhelmed by the various options and choices that may need to be made at first as you’ll get there together. It’s important to first set the control in this experiment, where you’ll look at what things look like if nothing were to change from today.

Once you have a baseline for the estimated financial future based on current savings balances, rates of saving (if any), and income, decide together on possible changes. Running the numbers on how those changes will each affect the projection of the baseline will give a clear idea of the consequences of various trade-offs.

Common scenarios to explore include:

• Selling the family home and moving to a lower-cost-of-living community;
• Increasing earnings, according to current skills and job market;
• Selling tangible assets of value, such as artwork, vehicles, power tools, or jewelry;
• Cashing in retirement assets to pay down high-interest debt versus letting the assets stay invested while methodically paying down debt; and
• Investing in additional training or schooling to increase earning capacity

Your client will also have their own ideas, so help them get creative and then assess the financial repercussions and projections of each idea.

Finally, beware of clients with a heightened perceived risk tolerance that comes from a desire to catch up quickly. This might look like a client who asks you the best way to invest for rapid growth or interest in higher-risk asset classes that may not be appropriate for the client’s current timeline, financial position, or knowledge.

CHOOSING THE BEST COURSE OF ACTION

For most of these scenarios, there will be a clear best course of action from a pure numbers standpoint. However, that will rarely align with what the client thinks they can tolerate in terms of changes needed to achieve the desired outcome. For example, you may calculate that saving an additional $3,000 per month would increase the possibility of retiring at age 65. But if that requires spending virtually nothing on travel or technology in the coming years, they may be unwilling to make that trade.

Remember that it’s not necessarily your role, as a trusted adviser and coach, to decide which is best for your client. The numbers only tell part of the story — an important part that will inform decisions, but the numbers won’t likely be the be-all, end-all in making decisions. Your role is to help the client explore the options and understand the consequences so they can make informed decisions. Then, your role becomes an accountability partner to remind the client of the decisions made and trade-offs agreed to.

In some cases, you may find that the choice that gives your client the most peace of mind is the one that generates the highest tax consequences, such as liquidating an IRA and paying an early withdrawal penalty to pay off debt and lower ongoing monthly obligations. Giving permission to make the choice that may result in a lower projected retirement income but offers more joy or comfort today may be the best support you can offer, as long as they are fully aware of the trade-off.

HELPING CLIENTS TAKE SPECIFIC ACTION

When offering financial planning support to men and women recovering from a midlife divorce, it’s often less about the numbers and more about empowerment and support. For clients who express anger, fear, or shame around money in general, that empowerment is likely to come from taking positive action for themselves.

For a client who, for example, simply needs to start putting money into a retirement account, suggest they open a Roth IRA or sign into their workplace retirement plan portal and get their account and contributions started.

Offer support through education and accountability. For someone who starts from a place of fear, shame, or confusion, taking positive action for themselves is critical to putting those unhelpful emotions to rest and beginning to work toward seemingly out-of-reach goals.

About the author

Kelley C. Long, CPA/PFS, CFP, is a personal finance coach and consultant in Arizona. To comment on this article or to suggest an idea for another article, contact Dave Strausfeld at David.Strausfeld@aicpa-cima.com.

AICPA & CIMA RESOURCES

Articles

“Dividing Up Assets When a Marriage Ends: Tax Implications,“ The Tax Adviser, Dec. 1, 2022

“Tax Planning Issues to Consider When Assisting Clients in a Divorce,“ The Tax Adviser, Dec. 1, 2022

“Top 5 Things For Clients to Consider Now That They Are Divorced,“The Tax Adviser, Dec. 1, 2019

“Helping Clients After They Are Divorced,“ JofA, Dec. 1, 2019

Podcast episodes

“Understanding the Human Side of Life Transitions,“ PFP Section podcast, Jan. 12, 2023

“How to Guide Clients Going Through Divorce,“ PFP Section podcast, July 22, 2022

Video

“Women, Divorce, and Money,“ PFP Section archived webcast (available to section members only), Aug. 15, 2022

Brochure for clients (Tax and PFP section members only)

Tax and Financial Planning Tips: Marriage and Divorce

PFP Section and PFS credential

Membership in the Personal Financial Planning (PFP) Section provides access to specialized resources in the area of personal financial planning, including complimentary access to Broadridge Advisor. Visit the PFP Center. Members with a specialization in personal financial planning may be interested in applying for the Personal Financial Specialist (PFS) credential.