This week Brian sits down with Matt Rappaport, a certified divorce financial analyst, to explain how he helps clients manage significant assets during a divorce. Listen as they discuss the benefits of clients meeting with an expert to plan for their financial future during an uncertain and turbulent time in their lives.
The Texas Family Law Podcast is available for download on Apple Podcasts, as well as on SoundCloud and Spotify. Don't feel like listening to it? The entire transcript is available below.
Using a Financial Advisor During a Divorce (feat. Matt Rappaport)
Brian: This is Brian Walters of Walters Gilbreath, and today we’re doing a little different format. Rather than Jake and I talking to each other about some legal topic, we brought in an expert from outside of the legal world who can be a great help to a client.
We wanted to talk to them, see what they can do and how they can help. And so Matt, why don't you introduce yourself? Tell us a little bit about yourself and what you do.
Matt: Absolutely. Thanks, Brian. Happy to be here. I'm Matt Rappaport. I'm a financial advisor with UBS financial services in Austin, Texas, and I help clients manage significant wealth, especially once they encounter a life-changing financial event.
As it pertains to this podcast, I have specific training and expertise in advising clients who've gone through divorce. I hold the credential of certified divorce financial analyst, which is directed to just that issue, and my practice has clients throughout the U.S. but I especially serve clients in Texas.
So that's an overview of who I am and what I do, Brian.
Brian: Thank you. So, let's talk about a future or a potential client of ours, for example, that came in and said “Hey, I think I'm going to get divorced in a couple of years or in six months. Can you help me plan for that?”
We'd look at their situation, their finances and let's say they had $7 million in assets, but it was all tied up in a business or in real estate or something like that. I’ll tell the person “Hey, you're going to be essentially splitting that with your spouse, but you don't want to be a business partner with a former spouse, for example, or you don't want to own an apartment complex with your former spouse. That's it can be pretty awkward. So you're going to need cash either for you or for them to get that done in a way that everybody can live with it.”
If they ask how do I get there and I send him over to you, what would that look like if you were to sit down with a person like that?
Matt: In that situation there’s really two things that come to mind. The first is just being knowledgeable about what it is that the couple has as assets, understanding the marital estate, understanding if they're separate property. That'd be the first thing, just a good educational overview. Not everyone gets deep into that. Not everyone likes to even think about that, but having that kind of knowledge is absolutely imperative.
The second point, which you also mentioned, is liquidity. Understanding that sometimes a good deal of wealth can be captured in businesses or other illiquid assets, but not actually available when divorce starts. So understanding what liquid funds are available, those funds that can be easily accessed for all sorts of expenses, is the second thing that I'd want to go over when I sit down with someone in that situation.
Brian: Yeah let's talk about liquidity for a minute. If this hypothetical client has $7 million sitting in a checking account, it'd be real easy to split that in some manner. They could just write the spouse check and be done, but let's say they didn't have it that way. For example, let’s say they owned an apartment complex that was worth $7 million. We would consider it not particularly liquid, is that correct?
Matt: That's right. It'd be difficult to find a way to get cash out of that. You'd need to go through a process and sometimes having that discussion is helpful because finding the right lending solution, for example, to find a way to get liquidity out is important to get the ball rolling on that, rather than having the issue become a cash crunch later on.
Brian: Okay. Then in the second, much more common scenario, which was somebody walks into my office and says “I'm going to file for divorce or my spouse just filed and is serving me with divorce papers, same scenario. We've got $7 million in various assets and it's complex.”
Again, if you had one where you had that much in a checking account that'd be easy. But it's not usually that way, especially with folks with significant assets. It's typically in multiple places, which may have different tax bad tax effects or tax consequences. It may be more or less liquid as we discussed, and it may be more or less easy to value them.
So in that case where there's an ongoing divorce suit and we need to get a sense of what's out there; what liabilities exist, valuations, and some guidance on how to get to a point where we could divide things up in a way that was reasonable, what would you do?
Matt: When we take a look at it from the quantitative side, the dollars and cents, which is not the whole picture but certainly part of the picture, getting the information together is oftentimes very difficult. When there's a complex estate it can be hard to find all of the information necessary to even understand what it is that the couple has.
Again, that’s where you start just trying to understand what the various business holdings are, if there's real estate, anything that's complex in nature beyond just looking at a statement and understanding.
We're working with the attorneys and working with accountants, and what I do is I try to make sure that I have a full picture and help the client fill in the gaps where there may be missing parts. When we talk about trying to have a full understanding, and that usually is a team effort with regard to the accountant, it’s having a lot of information about tax returns.
The attorneys usually are already trying to collect the information about expenditures and having a list of marital assets, and what I can do is try to coalesce everything into a cohesive overview of all that, to make sure that's all taken care of in one place that the client can see it all.
Brian: Okay. That makes sense. Is there a part of that that tends to be the most difficult or challenging for the clients?
Matt: Oftentimes complexity in business dealings can be known to one of the spouses and not the other. That's oftentimes one of the more difficult aspects to deal with. And ultimately if there is a growing concern, if there's a business interest in having evaluation performed on that interest, as is a very important aspect of the divorce process and oftentimes involved with experts.
Brian: The things that come to mind for me are tax liabilities, whether or not money might be hidden somewhere overseas or in cash or elsewhere, and about whether the business is about to undergo a significant change. Also if there are multiple owners of a business, just trying to figure out what the value of that particular owner's portion is, those are the kinds of things that I typically run into on the legal side of things.
Sounds like you're dealing with some of the same Issues on your end at times.
Matt: Exactly. Just as you'll bring in experts, I'll oftentimes say that this is somewhere where we need to have someone who's a forensic accountant take a look at this. The situation of perhaps assets being hidden or assets overseas, or simply having an accountant who is adept at working at these kinds of issues to understand the books of a privately held company.
Brian: Yeah, that does sound very familiar. Okay, how about a scenario where we have somebody who's been divorced and we've wrapped everything up.
They walked away with $4 million or so in various assets, some retirement accounts, some real estate, some cash, some portions of a money market account, these kinds of things. And this person, the spouse has never really dealt with the money before. They sorta let the other spouse deal with it. Maybe they've not been working for a while, maybe because of children, or maybe they're retired.
Now suddenly they have this big chunk of money. They don't have an income coming in, or if they do go back to work, it's probably pretty small. They need to know what to do with it, how to invest it, how to take enough out to live on but not take so much out that they it's going to run out. Is this the kind of person that you could help?
Matt: You're teeing up the perfect client for me. This is absolutely where I can add the most value.
At this point in someone's life it can be an exciting time because you're turning the corner and starting to look at a new life. So what I do to help clients in this kind of situation is just listen, ask questions and listen. Ask them, what do you want to achieve? Who is it that you care about? What are your current plans to achieve your goals and what are your biggest concerns?
I ask these sorts of questions to get a feel for who the client is and what it is that they really want to see happen in their future, because now it's a future that's very different than what it looked like when they were married. That is where I can really add a lot of value by getting a plan that's absolutely focused on them. Working with them, not just at that time, but I work with clients throughout life.
As life goes on, things change and circumstances are always going to be moving around us. We need to make sure that the client stays on the path that's best suited for them. So, that's an entryway into a new plan with the client, for their financial life, that's absolutely focused on them.
Brian: Yeah, that makes sense. I'm still surprised as when I have clients like that who really have no sense of money. And of course you can go online and read whatever you want to about it, but it does sound like that would be helpful.
I guess even the other way around where there's a spouse, who their focus is they have been the moneymaker. They have been running the finances, but they've had a set of priorities that are now different and I guess those people probably could use some help and direction too, is that correct?
Matt: Absolutely. It's an inflection point. Whenever you have a divorce, it's going to really change something significant in your life no matter what. That means that it's time for a plan that's fresh, no matter what.
I'll also say that a lot of people genuinely are uncomfortable talking about finance. That's not at all uncommon and working with someone who's forced for the first time to deal with questions that they've never had to deal with in the past because their spouse was always the one responsible for it can oftentimes be an almost terrifying experience. Being able to be there as someone to help a client who perhaps for the first time is encountering questions that make them uncomfortable is also a part of the value that I provide.
Brian: Yeah, it makes sense. I agree. It's one of those really sensitive topics, like religion or sex that just people don't want to talk about with probably anybody, but it's so important. Especially with, as you said, all the uncertainty in life, we don't know how long we're going to live.
We don't know what our future holds. If someone's divorced, I think most of my clients leave a divorce thinking I'm never going to do that again, but the facts are that most people are remarried within three or four years that are divorced. And with all those uncertainties, it sounds like a lot of people can make mistakes or really good decisions depending on the advice that I get. Does that sound correct to you?
Matt: That's correct. A lot of times the questions are genuine and might seem a bit silly to other people who are objectively looking at it. Someone who has millions and millions of dollars may have a genuine question as to whether they can afford to keep the house. They may have a genuine question as to whether or not they can continue to send the kids to private school. These are questions that go to the concerns that people have. And until you talk to a client and really understand where they're coming from and what they really care about, it's not possible to address anything else.
You need to get straight to the concerns that clients have and appreciate that every single one of them coming from the client, especially when they've been through a divorce, is a genuine concern that needs to be addressed.
Brian: I think the point about the ongoing need to recalibrate is a good one as well.
I could think of a scenario, where a 40 year old stay at home mom is divorced with two kids and has maybe a million dollars out of the divorce. She hasn't worked in a while and she probably is in that scenario where she isn't going to be able to stay in an expensive house in an expensive neighborhood and send the kids to private school, or whatever the plan is.
So that's what it looks like on the day of the divorce. Then, maybe three years later she's got a great job. She remarried to somebody, who's a high earner who has a house of their own in that neighborhood. In that situation, you probably need to take a very different approach than you would have three years previously.
Matt: Absolutely. One of the best things is just providing clients with peace of mind, knowing that there's a plan so that as life changes, as they say, that plan is always going to be right. They're focused on what the client has going forward from that day on which absolutely changes over time.
Brian: I agree. That's the analogy I always use with this is that the spouse who's not familiar with the funds and, or hasn't been there as the big wage earner. I think most of them feel like at some point in the process that they're going to be living under a bridge somewhere. Even if objectively that's not going to happen, and they would probably even say it wouldn't, but I think that's a fear in the back of their mind and it's a fear based on a lack of knowledge.
Having somebody who's knowledgeable would be quite quite useful. Anything else you wanted to, you would add or want to fill in or did we cover most topics?
Matt: What I'd say is I want to make sure that everyone knows that some good advice is just to make sure that you understand I'm a resource available for you and your clients whenever they need it, Brian. It's always better to seek out and ask questions and understand for yourself so that you're knowledgeable, because ultimately you're not going to learn unless you try and take it upon yourself to take the initiative and get the information you need.
Brian: All right. Very good. Thank you very much. We'll wrap up this podcast. If anybody has any questions or concerns, feel free to contact us or Matt and we'll post his contact information and go from there.
Thanks again, Matt.