Elegant Simplicity in Complex Financial Concepts

by Justin A. Reckers, CFP, CDFA, AFP

Elegant Simplicity in Complex Financial Concepts

Have you ever wondered why understanding simple financial concepts during divorce can be so difficult? Read on for some ideas for how communication theory might help you (or your client) make better financial decisions during a divorce.

What if we could explain complicated financial concepts on a 3X5 index card? Let’s start with the concept of fairness in financial settlements. You have, no doubt, heard (and thought) many times “I only want what’s fair” when it comes to money. Our experience has taught us that everyone’s idea of “fair” is different. So, how can this concept be understood in the midst of chaos?

First, we need to understand that the party is using words like ‘fair’ to describe his/her emotions. Second, we need to understand that emotions complicate rational thought processes. Third, we need to work to transition from emotional thinking to more economically rational thinking through processes. I like to do this by disrupting the emotional connection with pictures. All you need is a white board or a piece of paper.

I sketch the picture above on a whiteboard in my office and point out three things. The Husband’s idea of fair is represented by a square on the left and the wife’s ides of fair is represented by a circle on the right. The square and circle are clearly not equal in size or shape so the husband’s idea of fair does not match the wife’s idea of fair. The devil is in the details of the divorce financial settlements.

I am sure you have also had conversations or considered hiring a firm to help gather financial information or gain an education about complicated financial concepts and current family finances. Or maybe you wanted to hire a consultant to help do risk/reward analysis, develop creative settlement options and test the options for short and long term financial soundness. Although many people feel that an attorney should be able to do all of the above things, what is possible is that the unknown financial future and emotions can cause inertia. The decisions than need to be made are clearly overwhelming. I draw the following diagram to show the size and complexity of the financial decisions.

Once you acknowledge the size and complexity it is easy to see just how important it is to have the input and guidance of a financial expert by drawing the following picture. The bar graph illustrates the value of financial expertise in divorce settlements. A financial expert fills the gap with expertise in taxes, retirement plans, investments, cash flow analysis, business structures and transactions.

Negotiation is difficult work. Your financial consultant should constantly strive to help attorneys and clients make economically ‘rational’ financial decisions during and after divorce.
The steps are:

1) brainstorm creative options for settlement,
2) analyze the options for soundness,
3) understand the long term ramifications of each option,
4) make the most economically advantageous decision possible,
5) manage the transition into post-divorce financial independence.