How to be there for your clients during a "gray divorce"

Divorce can shake anyone's sense of security, but the financial stakes are higher for couples over 50. What's often called a "gray divorce" can involve a large number of assets, sticky legal questions, and complex histories.

Unfortunately, couples experiencing a gray divorce don't always think to work closely with their advisor—they may assume that lawyers and judges will understand the financial issues. For women, there's also a trust gap. Many women leave their advisor during a divorce because they feel the advisor works for their spouse, not them.

Serving clients during a gray divorce requires understanding this unique stage of life, seeing beyond the numbers to the wants and needs of your clients, and providing ethical advice and services that don't favor only one side of the divorce. During this difficult time, you can show up as a trusted, knowledgeable partner to one or both spouses to help them imagine a new, financially secure life.

Why is gray divorce trending up?

The divorce rate for couples over 50 has more than doubled since the 1990s.¹ Some of the reasons are historical. Divorce carries less stigma now than when these couples first married. Also, women now have more freedom and aren't as financially and legally dependent on their spouses.

But the reasons are also very human. When couples reach their 50s and 60s, their lives often change dramatically. The busy house full of kids is suddenly quiet. Work might be less satisfying, health issues emerge, or retirement isn't what they thought. It's also a time when a long, slow drifting apart becomes more obvious. The partner they thought they wanted in their 20s may not be the right fit anymore.

These are years when people often reassess their lives and what they want. They seek to reinvent themselves with second careers, hobbies, travel—and sometimes new partners.

Can you serve both spouses?

In theory, you can serve as a financial advisor for both spouses during and after a divorce, but you need to be careful. You can't let your fiduciary duty to your clients be compromised by conflicts between divorcing spouses.

If you do choose to continue to work with both halves of a marriage that's ending, consider putting these safeguards in place.

• Be transparent. Don't keep it a secret that you're working with their spouse too. In fact, even if you end up only working with one half of a divorcing couple, it's good practice to inform the other spouse. You might even show good faith by asking permission from the other spouse.
• Share information equally. If a couple wants to continue to work with you together but separately, make sure both partners are privy to the same information and conversations. This means cc'ing both partners on emails and including both partners in any meetings.
• Don't practice law. Unless you're an attorney, you cannot draw up legal documents or offer legal advice.
• Don't favor one client over another. Your job is to look for win-wins. If clients come to you asking you to take a side on a settlement agreement, for example, refer them to separate attorneys, accountants, Certified Divorce Financial Advisors (CDFAs), or other professionals who can help them solve their conflict.

Financial realities can hit hard

There's hope in a gray divorce, but also a lot of anxiety. Gray divorce often diminishes wealth, especially compared to younger stages in life. This is partly because of how challenging it can be to untangle decades of financial history, but also because older couples have less time to make up for financial setbacks. At a time when financial stability is important, their worlds are getting turned upside down.

Women often struggle more than men financially after a divorce. Even though women initiate more than two-thirds of divorces,² they typically have a lot to lose financially—especially if they stepped away from a career decades ago to care for children. Women also frequently need more money later in life because they generally live longer, on average have higher medical expenses over a lifetime, and often take on caregiver roles for family members.³

And there are other financial challenges clients may not even recognize. Challenges that can be, at best, time-consuming headaches and, at worst, wealth-eroding crises:

• Retirement spending. People considering divorce tend to think they will spend less money on their own, but the opposite often is true: Newfound independence can inspire them to travel, dine out more, or splurge in other ways.
• Inflation. Those with scant experience managing their finances may not appreciate how inflation erodes their purchasing power over time.
• Alimony. Court-ordered spousal support is not indefinite. At most it will be paid out for half the length of the marriage and is often curtailed at retirement.
• Taxes. Alimony will not be tax-deductible after 2018. Tax surprises may loom in investment retirement accounts (IRAs) and low-cost stock positions, which are among the favored investments to swap in divorces.⁴
• Administration. Plan custodians typically transfer assets pursuant to a qualified domestic relations order (QDRO) but those funds often remain in cash, not earning interest.

You're not only managing money

Your clients might not seem entirely like themselves when going through a divorce. If you were used to talking about liquidity, glide paths, or tax strategies, you're going to have to shift your conversations.

• Get to know the people behind the account. Factors that hadn't previously affected their finances might now come into play.
• Ask how they're feeling and really listen. Not only will you be providing needed support, you'll also have a chance to hear clues about what clients want or how they might approach decisions.
• Find out what they need and give it as best you can. Some clients will want emotional support first before digging into financial questions. Others might have very specific ideas about how to manage their money, but actually need to step back to see a bigger picture.
• Sketch out multiple roadmaps. Help them each see positive paths forward after the marriage is over and weigh options that help them feel that life is about to take an upswing.
• Find additional help. If you're not an expert in divorce, find someone who is. CDFAs can help clients navigate issues that are particular to divorce such as QDROs.

It's never easy to watch your clients go through a divorce. Ultimately, if you're able to look at the complex whole of your clients' lives and approach them with integrity, you can help them start their next journey standing on solid ground.

What you can do next

• Consider a custodian that invests in your success. If you're thinking about becoming an independent advisor, contact us to learn more about the benefits of a Schwab custodial relationship.