The need for a plan
Anyone who has used a satnav will likely have had the experience of being taken to a dead end, or in more extreme cases being told to drive across a river or through a farmer’s field! However, by having the satnav you can generally opt to take a different route and you will eventually end up at your destination.
We can apply the same theory to having a financial plan, in that if we don’t know where we are going and when we want to get there, then we are unlikely to ever reach our destination.
However, if we have a clear understanding of where we want to go and a plan that has been built to get us there, we can deal with the undoubted dead ends and river crossings that may occur.
Look beyond the here and now
Clients rarely ask for a financial plan, or want to discuss how their existing arrangements can help them achieve their goals and objectives in life. This is especially the case with clients going through divorce and the focus will understandably be on the here and now, and from a financial perspective on the pension, savings or other financial assets.
Whilst this is clearly important, consideration should also be given to the fact that decisions made today can have implications for not just years but decades to come.
However hard it may be, getting clients to step back and look at the bigger picture can add real value for them in the long term.
Without knowing what they really want can we be sure that the split of assets being agreed is right for them, or have they looked at the short term without thinking about the future.
Putting the jigsaw together
The assets the client has should be viewed as the fuel for this plan. Clients are generally much more interested in pensions, savings and ISA’s if they can see the value they can add to their life, rather than just being a number on a page.
Once there is a clear understanding of goals and objectives, we can show the client what their current position is, and importantly if they are able to achieve what they want.
One of the most common questions we get asked is “Will I be ok?”. In these cases, I do firmly believe that “a picture paints a thousand words”.
By using Financial Planning software, we are able to take a significant amount of information and data that needs to be gathered through the process and show clients the answer to this question.
For clients going through divorce this can be extremely powerful as it can provide them with peace of mind that they will be ok, or if things don’t look how they want it allows them to consider any trade-offs that need to be made, or show where there might be some flexibility in their plan.
Financial Planning after Divorce: To practice as a Family Lawyer requires a variety of skills not all of which are taught at Law School. Unlike many other areas of law, a large part of matrimonial work involves managing client emotions as well as providing substantive advice. This is particularly true of cases involving children. Other non- legal knowledge is also beneficial. Many clients seek advice from Family Lawyers about their financial situation. They are concerned about the future and the uncertainty created by the separation. They want their lawyer to ensure they receive their fair share of the matrimonial property. In addition, there is often a deep-seated concern that following divorce they will not be able to afford to continue to maintain their lifestyle. The advice sought is a mixture of legal advice about the legal position and general advice about finances, be that to do with pensions, savings, debt or ongoing expenditure. In relation to the advice about money the client believes the lawyer will be in a position to provide this presumably through personal experience or having dealt with many similar cases. That said Family Lawyers are not specifically trained to cope with these situations.
The concern about the future financial outlook is understandable, particularly for the party who does not have a complete picture of the financial situation. Very often one party holds the financial reins and, over the years, takes charge of the finances. The effect of this, following separation, is that there is an imbalance of knowledge and the vulnerable client will need help to organise his or her own finances in the future. Such advice could come from the Family Lawyer. In most cases, however, the Lawyer is looking to resolve the situation in the present. The lawyer wishes to ensure the client receives a fair deal and applies the legal framework to achieve that. Two points emerge from this;
- A fair financial settlement is not only about sharing the matrimonial assets reasonably. It also has to take consideration how the respective clients will cope moving forward and in the future. Before any settlement is agreed projections have to be made. Will a capital sum suffice? Is a maintenance payment required and for how long?
- Is the Family Lawyer the best person to provide this kind of non-legal financial advice? Historically Family Lawyers have only asked Independent Financial Advisers (IFAs) to assist with their matrimonial case where Pensions have been involved. It is generally accepted as good practice that when a Pension Share is to be put into effect Independent Financial advice should always be sought. It is also true that in Collaborative cases IFAs have an important function in identifying the matrimonial assets and helping to formulate a financial settlement that is acceptable to both sides.
One aspect of an IFAs work that would assist Family Lawyers and go a long way to clarify for their clients what the future might hold from a financial perspective is Financial Planning. Family Lawyers and IFAs can provide clients with the best possible advice when working as a team. In cases where the circumstances merit it, Family Lawyers can call in an IFA (preferably someone with experience of Family cases) to advise on the financial situation and provide projections for the future. Working together hopefully they can allay the client’s fears as to what the future might hold.
What if?
By having these discussions with clients and starting to build a plan it also allows the “what if?” conversations.
Discussing the impact of financial shocks is key to testing any plan. What happens in the event of a serious illness, being unable to work or in the worst-case death?
These conversations are never easy but they should not be ignored, as to do so is the equivalent of building a house on sand.
When clients have a plan it also then allows them to see the future in a different way. Do they really need to work to 65 just because that’s the age on their pension statement? Can they afford to take that trip around the world they wanted to? Are they able to help children with educations costs, or the deposit on a house? All of these things are far more important than the level of the FTSE or what percentage return their investment did or didn’t make last year.
The use of technology can help give clients a clearer picture of their future, but the questions asked, and the conversations we have with clients are much more important in helping to understand what is really important to them.
People change, the world changes and the plan will change
As we move through life our circumstances change both by reacting to events that go on around us and also how we think and prioritise things as individuals. What may once have been important may no longer be the case, and new goals, dreams and aspirations may come to the fore.
With this being the case, there is the need to regularly review any plan to make sure it is still on track and you are heading to where you want to be.
To go back to the satnav, you use it so show you how to get to your destination, but you don’t drive with your eyes closed.