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Hello, and welcome to the PracticeLab podcast, where we talk to top advisors about what makes them successful, so that you can apply those lessons in your own business.
I'm your host, Angela Shah, and today I’m speaking with Lynne Knox, a private wealth advisor with Capital Group Private Client Services who specializes in helping women navigate the financial and emotional process of divorce. Many of her clients are in “gray divorce,” ending their marriages after age 60.
In this episode, Knox explains her thoughtful approach to working with high net worth women often dealing with complex financial issues for the first time, along with important planning tips for advisors like you helping clients with divorce.
Angela Shah: So, let’s jump right into our conversation. Lynne Knox, welcome to the PracticeLab podcast.
Lynne Knox: Thank you. Glad to be here.
AS: Glad to speak with you today. Lynne, share a little about how you got involved in financial planning for divorce.
LK: I've always been interested in women's issues and serving women. So it's drawn from a place of that, as opposed to a place of divorce. And I joined Capital Group Private Client Services in ’06. So shortly after that, we went through the ’08 crisis. And there was a lot to reflect on following that pretty big correction. And one thing I reflected on is what worked, what didn't, and where do I go from here. And the thing I observed was that women I work with stayed the course, appreciated the advice. And were really great to serve.
So I started to focus more on that. And the women that met our minimums of $5 million were women that had more traditional marriages, where they had played more of a housewife role, and their spouse was the breadwinner. And with that, most of the women that were coming to me were coming into this money for the first time on their own, either because a parent died and they were inheriting separate property, their spouse died and they were widowed, or they went through a divorce. Two-thirds of those were divorce, and a third were widows and inheritance.
So I quickly decided to spend a fair amount of time concentrating on this specific clientele, and mostly because I found it incredibly rewarding and impactful. You know, you can manage money for wealthy people and just make them more wealthy, or you could change the quality of someone's life. And I really felt that I was being impactful on the quality of someone's life, because all of those scenarios are highly emotional, fairly traumatic. And they're looking for somebody they can lean on and trust and walk beside them.
So I felt pretty well suited to playing that role. And more of my role as an advisor is about the soft skills than it is about the technical skills. No doubt, there's plenty of technical skills that come into play. I'm a CPA by background and have a family office expertise I gained from the years of working in a family office as a partner.
AS: Divorce can be such a flashpoint in a person’s life. How does that affect how you advise clients during that time?
LK: I think, on the surface, someone might find this as very lucrative work. But you really have to recognize what’s there. One, the close cycle of the settlement of a divorce can take a very long time. I establish relationships with what might be a few $100,000. And then you're gradually funding that relationship over one, two years, typically. And it requires a certain temperament — a huge amount of patience and empathy — and if you're not comfortable with all of that, you could pick some other expertise that doesn't require those kinds of interpersonal skills.
AS: Right. Right.
LK: Sometimes divorces, you know, can take up to four or five years, and I've seen that. I'm sure a lot of advisors would like to come in when it's all over. It's a long process. But for the women that I've worked with, they often gravitate towards hoping to have assets that keep their life feeling emotionally settled. They want a stable environment for children, they want something that represents comfort for them. And yet that may, from an economic standpoint, not be the financially best move for them. It’s helping them see their picture more clearly and understanding what they need to do to sustain their lifestyle in this next chapter of their life.
It's important to work with somebody that can help them have a full view. When you're thinking about the kind of assets you want to receive, you may need to sell some of those assets and reposition them more optimally to support your lifestyle. And if those assets are private equity that can't be liquidated for 10 years, and you need the cash to live on for cash flow, that's not an optimal asset to receive.
AS: Right.
LK: Of course, unless you can afford that. Assets that have a lot of embedded gains in them, unrealized gains, same story. If you need to create liquidity or cash and you sell those assets, and the IRS and your state takes some of those assets in taxes, that reduces what you have to work with. I recall a divorce I worked on, where I helped them write in the settlement that she would receive at least a certain percentage of her assets, her divorce assets in cash, and that the marketable securities she received would all be liquid, no private equity, and that the mutual funds that she had were all highly tradable, and that the embedded gains in them were no more than 25%. So there are things that you can do to help protect somebody so that you're setting them up for success post-divorce. And those are things that people don't think about. Sometimes family law attorneys don't zero in on as much.
But having somebody really help you figure that out … and I also do a lot of projection or cash flow projection work to help them understand how much in core assets they need to sustain a lifestyle. If they loaded up on illiquid assets or real estate and short themselves on assets that they need for cash flow, I can shine a light on that and help them steer in a certain direction.
AS: How do your clients find you?
LK: It's fascinating, within two years of deciding to concentrate on this clientele, it was 80% of all my new clients. And it really came down to very specific messaging. And my messaging was storytelling. And people could carry that message. And I shared experiences of what it was like to help a woman going through a divorce, and what the quality of their life was, you know, soon thereafter. And people remembered those stories, remembered my specialty.
And when they encountered a similar situation, reached out. And I traveled in circles with professionals the serve similar clientele. And I created some advisory boards of professionals that serve my similar clientele.
AS: Tell me about these advisory boards. What are some of the expertises or specialties that you make sure to have represented on them?
LK: I have one advisory board that I've worked with for over 12 years, the same group, and we've been together consistently meeting every quarter for 12 years. And that group consists of family law attorney, real estate professionals, trust and estates, CPAs, career coach, life coach, life insurance, property and casualty, tax, real estate, realtors. And when you think of someone going through a divorce, they start over completely. And so you want to be surrounded by all that expertise that can help you rebuild that financial life for a client.
AS: I wanted to ask you, gray divorce is the largest category of folks getting divorced. And they often have much more complex financial positions. I wonder if you’re seeing that in your practice. Are you tailoring your services to meet that need?
LK: That's such an astute question. One year, I did like five or six divorces, and they were all 29 years of marriage. And it spooked me because I had been married 29 years, and that night I go home and kissed my husband. I think that's right around the age that you're talking about. The kids are mostly grown, and they’re sort of changing views on what life means to them. I've seen a lot of infidelity as a cause of divorce. And also, bipolarism has been a huge source of divorce. Those two have been the single biggest causes in my practice.
Most of my clients fall in the older category. So I think there’s a fair amount of those people are being uprooted, right? After years of being married, it's a big, big change.
AS: It is. Yeah.
LK: It's the same change you're going through if they are widowed, you know, they've lost a husband [to] a heart attack or something, or lost a parent, whatever. It's a big deal to sort of harness this money for the first time. So you are being very, very encouraging. It's not like a woman in her 40s who decides, you know, this marriage isn't working, and they leave and they move on.
AS: What’s most important when advising clients in divorce?
LK: I think it's important to recognize what's important to them, and really take that and own it. It doesn't matter whether that's important to to me, it's important to them. And sometimes, what's important to clients is very different than what I would view as important. It’s really, really essential to recognize and honor their priorities.
And remind yourself, or remind them that you have their priorities front and center all the time. You could tell them the answer. But then they don't own it. You can use a technique called appreciative inquiry, and let them answer their own questions, and ask the question so they arrive at the answer for themselves. If you tell them, ‘If you spend your money on this, you won't have enough for this,’ they may believe you, but they just, they don't care. If you ask it in a different way, ‘What will happen if you spend your money on this? And then when the time comes, you have to sacrifice this? How will you feel? Will there be regret? Or will you be comfortable with that decision?’ Let them answer it. And then they also feel in control.
AS: Yeah, and maybe that's even more important in the situation. Helping them feel just a little bit of control piece by piece might make the difference?
LK: Well, I'll say this: Ninety percent of the clients I work with are in an incredibly fragile state when they start to work with me. They may feel insecure about encountering this unknown chapter, what the future holds. They may be angry and feel their trust has been breached by their former or their future ex-spouse. They may be untrusting because in the divorce settlement, their spouse is trying to outmaneuver them. They may be worried about the impact on their kids. They may be worried if they are going to get enough money to live on and will everything come together financially, and feeling a little bit insecure about their own experience and taking control of assets. They may even be worried that they're going to expose their lack of experience with dealing with money and are afraid to reveal just how little they know.
AS: Right, right.
LK: So most important is establishing trust and feeling the pain and anxiety that they're feeling, letting them understand you really appreciate where they are. Helping them see 12 to 18 months down the road, and that they won't feel that way in the months to come.
And you know that because I've done this 100 times. I love seeing them eventually evolve and become strong. I had a woman that every time I talked to her she was literally absolutely in tears. She couldn't have weighed more than 90 pounds. She didn't open her mail for months. She just could not. She was so fragile, so fragile. You can't even believe what she looks like today. She's the most bright, joyous person in a new relationship doing fabulous things with her life. And she's super happy. She did not believe me when I told her, “You will be happy one day.” And they chalk that up to you; they give you the credit for changing the quality of their life, and that's what makes this advisory role so incredibly rewarding.
One thing I have learned over my years of doing this is any client, whether it's a divorce client, or a business owner or professional, they all come to you when they're in some form of pain, or they wouldn't be seeking you out in the first place. Something's not working in their situation that makes them want to pick up the phone and seek a different solution. And I think as an advisor, your best opportunity is to spend enough time to make sure you have uncovered where that pain is. If all you're doing is selling what you have to offer, you're just a salesperson. If you are uncovering the essence of what is troubling them, you can really institute some positive change. And for any client, whether it's a divorce or some other circumstances, they will be grateful that you've improved the quality of their lives.
AS: How does your role complement that of a divorce attorney that the client already may be working with?
LK: Here’s something else that’s interesting. Most divorce attorneys, they filed the dissolution papers with the court, they get the divorce decree. And the divorce decree says Mr. Spouse, you get this. Ms. Wife, you get this. And they go like this. But no one helps them actually marshal those assets under their own new title.
And so my role is to do a balance sheet, make sure she gets everything that aligns with the divorce decree, put the retirement assets through a QDRO process. And make sure she gets a new estate plan, make sure she changes the beneficiaries on her retirement plans, make sure she clears him off of her credit records, her credit cards, her mortgage, you know, make sure all assets are newly titled in her name or her trust.
So that process takes 12 months, 18 months, however long it takes. The family law attorneys have moved on.
AS: Right, right. Sure.
LK: So it's important to have somebody that grabs their hand and takes them into that next place.
AS: How much does – and obviously, you work with high net worth clients, and they have complicated financial positions. But how much of the basics, kind of like income tax mitigation, estate and tax planning, even like head of household status, things like that. How much of that comes into play when you're working with these clients and helping them figure out their post-divorce financial life?
LK: Very key. Very, very key, a lot of nuts and bolts cash-flow planning, helping them do a budget, helping them understand the components of their lifestyle expenses. It's remarkable how many clients have not done that. But I'll tell you, spouses do try to hide assets. I mean I've seen that. I’ve seen them lend money in their business and pay it as an expense. But wink-wink, ‘it's really a loan, you're going to pay it back to me after the divorce is final’ as a way of lowering the value of one of the assets that they have to divide in half. People buy, you know, $20,000 rare breed cats. OK, you can have a cat but, you know, [unintelligible.]
AS: What do you think about the CDFA designation? Is that something that you would recommend those starting out in divorce financial planning to consider getting?
LK: I started back, I don’t know, 12 years ago, going to the CDFA conferences. And it really still was a fairly fledgling organization. And they had the CDFA designation, which I thought was really great. So much of what I've done as a CPA, I feel like I’m covering an awful lot of that already in terms of the kind of work I do. Would it teach me anything? You bet. Would it enhance my business? Maybe a tiny bit? For anybody that doesn't have my accounting and tax background? I would say I would highly encourage. And I think that credential would speak well.
AS: What do you do when you first kind of meet with someone, apart from getting their emotional state and their hopes and fears?
LK: I want to know all the assets under their umbrella, and understand how they intend it to be divided. I want to know where there are risks. For example, I'm working on one right now. And the spouse is supposed to get certain installments for her share of a family business. And if the other spouse does not perform well in the business — for any number of reasons that might have led up to the divorce in the first place — my client may be compromised significantly from a financial standpoint. So where's the risk there? How do you insure for it? What happens if the spouse dies in the middle of the divorce settlement, and she doesn't get all her assets, all her installments? So, you identify risks. I make a checklist of all the things that we need to do. I help clients prioritize what they should work on first. Oftentimes, they steer towards things that are really the last thing you should focus on.
AS: For example?
LK: It’s amazing, most of them want to focus on a house. I have a client who just got the first big installment on her divorce settlement. And the first thing she wants to do is buy a house. And within weeks of that, she learns that her installments are completely at risk, because the husband is engaging in very unhealthy activity and can't perform at work and the value of the business is plummeting.
AS: Oh, no.
LK: And I'm thinking, why would you buy a house when you don't even have all the assets that you’re entitled to you yet?
Wait till you have it all in place before you spend that money that jeopardizes your lifestyle. So she's very grateful she did not buy a house. And what’s interesting is when they think of buying a house, they don't think, ‘Let me line up all my financials, my financing, figure out what kind of mortgage, what size of mortgage I'll need, what size of downpayment I need, what price range I can look in. Figure all that out before I even go shopping for a house.’ The first thing they do is just go to an open house, and then they see something that they absolutely must have. It's like a fire drill trying to unwind.
AS: What is key to building a successful relationship with a client going through divorce?
LK: Clients feel out of control. And the most important thing I think you can do as an advisor is make them feel in control. Not that you're going to do it for them, but just really enable them to feel in control. And some of that is even when I asked some questions, I ask permission to ask a question. That sounds kind of weird. But some people just get out there and ask a bunch of questions, and then you feel kind of invaded. You're asking permission to ask certain questions and they feel a little bit more control. When they feel a little bit more control over you, they trust you more.
AS: And they feel invited and listened to, I think. Yeah. I can see why that approach would be more comforting.
LK: Yeah. And I think the basis of a successful relationship is all about rapport, respect and trust. And you can't move too quickly to the how much you got, and how quickly can I [access it]? [crosstalk]
AS: Talk about the client relationship after the divorce is finalized.
LK: I conducted a three-week session called ‘Women, Money, Sex and Power.’ And it was with a life coach, and it was all about, and just for my women clients, and it was all about getting to the bottom of why do you cede your power? Why do you give up your power? And why does that happen? And how to gain that back and understanding some of the dynamics that are behind it.
AS: Women, money, sex and power. Very provocative. Tell me a little bit more about these sessions. Why did you feel it was important to host something like this for clients?
LK: Well, I think the most important thing when you're facing the next chapter in your life is to feel secure and strong, and mostly in control of your destiny. And so I think about ways to reach clients to empower them to give them the strength to make good decisions, that will only give them the greatest success going forward. And often women don't realize where they have control.
A divorce can put you through a process where you feel very much like a victim. As you can imagine, a number of causes of divorce are a breach of trust. And so the women I've worked with often come out of the divorce process feeling very untrusting, feeling that they have been victimized and don't feel strong. I think what's important is to understand where they have the actual control over their destiny.
So working with some advisors in my advisory board, I had a life coach who is of supreme caliber in coaching, and she conducts sessions on women, money, sex and power. And is devoted to the idea that women, if they really look inward, can understand where they can get out of their own way towards successful decision-making.
And so we conducted a session with a dozen or so newly divorced clients that were going through this process, and they gained support from being with each other in the room. It was a safe space and a cone of silence.
AS: Sure.
LK: And our moderator, the life coach, helped us and the women really think through their own situations in perhaps a more fresh light.
And [they] were also comforted by the idea that they were normalized being in the company of women with similar experiences. And then those women also have the option to reach out directly alone to the life coach, and decide if they wish to take it further, more private sessions and do some deeper work. So I felt that it went really, really well. I think the clients are really grateful.
I think of myself as a personal CFO and a partner, so I walk beside them as they make lots of decisions. And sometimes those decisions, they know the answer, but they need a sounding board. I like to be that sounding board and that friend and partner in that process and that confidante.
AS: Excellent. Well, thank you so much. This has been a great conversation, Lynn.
LK: Thank you, good to be with you.
Angela Shah: Well, that’s it for this episode. We really hope you enjoyed it. Thank you to Lynne Knox for spending time with us today.
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Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.
As referred to in this podcast, QDRO stands for a qualified domestic relations order. This is a legal order for a retirement plan to pay child support, alimony or marital property rights to a spouse, former spouse, child or other dependent of a retirement plan participant. As referred to in this podcast, CDFA stands for certified divorce financial analyst. It’s a designation given to financial advisors by the Institute for Divorce Financial Analysts after the completion of specific training.
Any reference to a company, product or service does not constitute an endorsement or recommendation for purchase and should not be considered investment advice.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice. This podcast is intended for U.S.-based financial advisor audiences.
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