Divorce is a lucrative earner for some, not least lawyers, but for families it is usually a protracted and bitter procedure.
More than 150,000 divorces are granted in the UK each year, according to the National Audit Office. As marital assets are divided between couples, the expert advice of an IFA can be of huge comfort to either party.
A new model of settlement gaining popularity in the UK could shake up the role of IFAs in divorce cases. Known as collaborative law, it involves both parties disclosing their finances and actively pursuing a mutually amicable settlement. Unlike other forms of arbitration, it locks the parties into a contract, or partnership agreement, whereby they are committed to resolving the divorce out of court.
The model was created in the US in the late 1970s. One of its founders, Judith Johnson, president of the Collaborative Law Institute of Minnesota, says: “It developed out of client and lawyer dissatisfaction with the traditional adversarial litigation method of handling divorce.”
Collaborative law is unique in that the parties are legally bound to disinstruct their lawyers if an acceptable settlement cannot be reached. Johnson says: “This reduces anxiety because families know the lawyers are not secretly bringing together a case to go to court. They are actively involved in the solution.”
The appointment of an IFA as a neutral third party is a key element of this model. The adviser looks at the value of marital assets, such as property, personal savings or insurance policies, and is on hand to offer impartial advice on the best investment opportunities available.
Newly separated couples may have a large amount of capital at their disposal and appreciate advice on how to restructure investments after the receipt of a final settlement sum or the sale of a house.
With divorces that go through litigation, IFAs are usually appointed to determine how best to implement what has been agreed already through negotiation between the client’s lawyers. Under collaborative law, an IFA may be engaged much earlier and undertake tasks normally carried out by the solicitor, such as the preparation of budgets.
Dawsons partner Conrad Adam says: “The IFA may become more instrumental in helping to shape the settlement by suggesting options and possible solutions to certain issues as the process moves forward.”
A series of four-way meetings underpins the collaborative approach, with the parties and their legal representation talking through the different aspects of the divorce. These become five-way meetings when an IFA comes on board to issue a report and offer advice.
Kester Cunningham John consultant Fiona Bethel believes that discussions can be a lot more cohesive in this environment and allow an IFA to offer greater variety of financial solutions.
She says: “You can be more flexible and creative than when going through litigation. With five brains working together, you come up with much more dynamic solutions than simply offering a mortgage.”
Correspondence is kept to a minimum and the emphasis is on face-to-face contact so new skills are expected of the IFA. The adviser must demonstrate sensitivity and diplomacy.
Bethel says: “The way an IFA responds and delivers information is critical. You cannot hide behind letters.”
The vast majority of IFA divorce work involves assisting with the pension aspects of a settlement, where an equal division of assets or a percentage split is required. The IFA looks at the value of a pension in real terms, not simply its transfer value.
Collyer-Bristow partner Philip Rutter says: “A final-salary scheme can be of more value than one party expects initially.”
He says solicitors do not necessarily know the best way of investing the funds so this is an area of specialist expertise that suits IFAs. “Lawyers cannot provide all the financial advice that clients require,” he says.
Mills & Reeve partner Roger Bamber says the collaborative approach allows IFAs to enhance their reputation among existing clients and helps to expand their client base. He says “One partner will often retain the couple’s existing adviser but the other, typically the wife, will usually look for a new IFA. If she is suitably impressed, she is likely to approach the IFA who dealt with the divorce settlement.”
IFAs who work on collaborative cases also develop positive and potentially lucrative relationships with solicitors.
HFS Milbourne managing director Roderic Milne says: “Solicitors are notoriously difficult animals to get business from. They are reticent about passing business on. They have their own trusted networks of IFAs. Collaborative law represents a step towards getting introductions to other areas of a solicitor’s firm.”
Some 800 lawyers have been trained in collaborative law by Resolution – the recently rebranded Solicitors Family Law Association – but just 85 IFAs have received training. FWP director Karen Ritchie, who designed the association’s two-day IFA training programme, says: “Accredited IFAs will find themselves in demand.”
If one party or other is trying to hide his or her assets, they are unlikely to opt for the collaborative approach. But for clients hoping for a quick and amicable solution, the collaborative approach is proving an attractive option.