Tips for Women on Divorce Financial Planning

On this episode of The Long View, Stacy Francis, the president and chief executive officer of Francis Financial, discusses money games being played at the expense of children, divorce from a tax perspective, and whether women having a divorce attorney is sufficient.

Here are a few excerpts from Francis’ conversation with Morningstar’s Christine Benz and Jeff Ptak.

Benz: I want to ask about your clients who have been married because I know that divorce is a big focus of your practice. Do you find that women still often delegate financial decision-making to their partners, or are younger women doing a better job of being plugged into, or perhaps even leading the way, in the couples’ financial affairs?

Francis: It’s a great question, Christine. I see, and studies have actually shown this, that even our younger generation tends to delegate financial decisions to their spouse. So, this is Gen X, Gen Z and, of course, the baby boomer generation and the older generations.

That being said, we as women tend to be more involved with the day-to-day bill-paying, budgeting and that piece, but not as much in the investment piece, financial-planning piece, working with the accountant. And often, it’s not a conscious decision of, “I don’t want to be involved in the finances, so I’m just going to let my spouse take care of it.” It’s usually just a divide and conquer. I have two kids, and I will tell you that we do the same thing. I manage all the investments; I manage all the tax planning; I manage all the financial planning; and my husband pays all the bills. Now, because I see what happens when you go through a divorce or God forbid, if I passed away, he would actually be in a really difficult position unless he was fully integrated into understanding the finances. And so, for our marriage, which works for us and works for our clients, is that we do a financial date night once a month, where we go over everything. We go over the budget, we go over our investments, we go over how much should we be putting into the 529 plans from your bonus, what portion should we be putting into our retirement accounts and bringing them up to speed. But the problem is, is that the vast majority of couples, it’s that divide-and-conquer mindset, which I understand, but it means that one person is in the financial dark, and it becomes a problem when they now have to make the financial decisions on their own. And for women, eight out of 10 women at some point in their life are going to be 100% solely responsible for making financial decisions on their own. And most of those women, unfortunately, are just wholly unprepared for that because they haven’t been ingrained in the minutiae and the information about where the money is, how it’s invested and how to make smart financial decisions about it.

Ptak: You’re a specialist in divorce financial planning. You’re a certified divorce financial analyst, and you’re also a divorce financial strategist. One question someone going through divorce might have is whether having a divorce attorney is sufficient to sort out financial matters? How would you respond to that question?

Francis: I don’t think everyone needs a certified divorce financial analyst. That being said, if there are significant assets and different types of assets, it becomes imperative. You can have a divorce settlement where one spouse is walking away with $1 million, and the other spouse is also walking away with $1 million. But after tax considerations, that first spouse, that $1 million, after paying Uncle Sam could be walking away with only $650,000, especially if you’re having different types of retirement: a Roth IRA versus a traditional IRA versus a traditional 401(k) versus a Roth 401(k), if there’s restricted stock units, if there’s incentive stock options, nonqualified stock options, if there are hedge funds, or private equity, or commercial real estate that’s throwing off income. Then all of a sudden you are having a pretty complex asset situation where having the expertise of a certified divorce financial analyst to help you analyze the settlement from a tax perspective and a risk and growth perspective is really helpful. And for most individuals I find that their fees are actually less because often a matrimonial attorney will try to do some of this work, and it’s not their superpower. And most certified divorce financial analysts, their hourly rate—I know ours is like half; in fact, in some cases, a third of what matrimonial attorneys in our area charge per hour. So, again, if it’s a complex situation, or I guess if you feel unsure about your financial knowledge, reaching out to a CDFA a just to even see if it makes sense can be a good thing.

Benz: Is there sometimes an element of sleuthing that comes into play where it’s not really clear what the assets are, and does your firm get involved in that front, just trying to sort out what are the assets in play here?

Francis: Yes, I would say, about half of the women who come to us do not have full transparency and view into the assets of the marriage. Sometimes it’s because they just weren’t involved. But we also work on a lot of cases where there has been financial abuse. And financial abuse is where that partner has been on purpose not allowed access to the assets, not allowed information about the assets of the marriage. So, yes, there is some sleuthing. We are not forensic accountants. But I will tell you that we can do wonders with tax returns.

I have a client who just hired us. Same situation. A long-term marriage and she had no idea about any of the assets that were in his name, only those in her name. And through the tax return, we were able to find five different accounts—taxable accounts, one retirement account. And with the taxable accounts, because the interest and dividends were listed on the tax return, we were able to reverse engineer into what the values of those accounts would be. And we were very conservative. The total number we came up with across those five different accounts was a total of $17 million. And so, all of a sudden, it became very clear why her husband, who inherited a lot of this, why he’s never really had a job throughout their whole marriage and how they’ve been able to have a home in Italy, a home in Paris, and a home here in New York.

Ptak: We interviewed Farnoosh Torabi on this podcast last year, and she made the point that custody arrangements often disadvantaged divorced moms. Her comment was that the mom gets the kids, and the dad gets time to dedicate to his career. Is that a fair assertion in your opinion?

Francis: So, first off, Farnoosh is a rock star, and I just so respect her. Custody can disadvantage the mom if she, as primary custodian, is not able to have access to funds to pay for support around the house and babysitting so that she can have her own career. We do see this. I also see a really unethical game played by certain parties of the divorce where they’re arguing to have more time so that they are not responsible for paying a big number in the form of child support, when in reality, once the divorce is final and all of a sudden that 50/50 custody split, all of a sudden that person is saying, sorry, I have a business trip; sorry I can’t make it this weekend. And in reality, the time split is closer to a 75/25, but the person who ends up taking that 75% with the children is not getting enough child support.

So, we do see money games being played at the expense of the welfare of children. And it’s wrong. It’s wrong. For a lot of women, the vast majority of women, it takes them much longer to financially recover from a divorce, and for many of them, they never fully financially recover. And one of the biggest pieces they can put in place to help them speed that recovery and get them on the right financial path is going back into the career force, into the workforce. But it can be very difficult when you’ve got kids at home. And again, if you’re not getting enough child support to be able to get good care for them, you find yourself in a really, really unfair and tough position.