Investing After Divorce with David Edwards & Andrea Vacca
Andrea Vacca:
Welcome to A Better Divorce podcast, where we have conversations about the emotional, financial, and legal issues that are on your mind or should be on your radar if your goal is to keep your divorce out of court. I'm collaborative divorce attorney and mediator Andrea Vacca, and I know that how you divorce matters to your long-term wellbeing. That's why it's my mission to help you have a better divorce with as little acrimony as possible, so that you can create the best life possible on the other side of your marriage.
Hi everyone. This is Andrea Vacca and I'm happy to have Dave Edwards with me today here on the Better Divorce podcast. David is the founder of Heron Wealth, a New York City based wealth advisory firm that provides financial planning, investment advice, and tax and estate planning services to his clients and families living in the United States, Latin America, and Europe. David, welcome to A Better Divorce podcast.
David Edwards:
Good morning, Andrea.
Andrea Vacca:
I'm really looking forward to our discussion today about investing after divorce. What I've seen, and I think we've both seen, is that many marriages, one partner takes the lead in investing during the marriage and at the end of the marriage the other partner doesn't really know what they've been spending, what they own, what they owe. They don't know how the money has been invested and they don't know what's coming in, going out, and they now need long-term financial planning for the rest of their life. They have assets and what to do with all that money. So I'm sure that you have many stories about clients that you've worked with who weren't financially sophisticated during the marriage, didn't really understand it all during the divorce, and now they have money to invest. I don't know, any stories you can share that would help us understand what you see and maybe what people should or shouldn't do, and how they can be helped after the marriage is over?
David Edwards:
Yeah. Marriage is absolutely a partnership, and partnerships succeed when people divide up the tasks between themselves. One person is the finance expert, one person is the childcare expert, one person is the health expert, one person is the vacation planner. And then all of a sudden you're divorced and all of a sudden the finance person needs to acquire childcare skills and the childcare person needs to acquire financial skills.
I'm going to tell a story of one of our clients. I'm going to disguise the names and places for obvious reasons. About six years ago, I got a phone call from a young man and he said, "I'm not calling on behalf of myself. I'm calling on behalf of my mother who's in a bit of a financial pickle." I said, "Well, tell me the story." Well, it turned out she had been the wife of a very successful and powerful New York City investor, and when they had divorced 10 years earlier, she got a chunk of money and she got alimony. And 10 years had gone by and the alimony was coming to an end and all the settlement money was gone and she was actually really approaching bankruptcy. It was a bad situation.
So we brought her in for our first meeting, herself and her son, and I asked them to explain the whole situation and they told me the whole story. Then I said, "Well, did you have any financial advisors along the way?" And she said, "Oh, absolutely. This guy sold me insurance, that guy sold me a house, somebody else sold me something else." And I go, "Oh yeah, I understand. Those weren't advisors, those were salespeople." And salespeople, if they're in the business of selling hammers, every problem looks like a nail.
So we did an inventory of her resources and we found that she had a big insurance policy she didn't need, so we liquidated that. She also had a lot of real estate in New York and Florida and Pennsylvania, and so we went through a process of valuing that real estate, bringing in outside experts to liquidate the real estate, get rid of that cost and also free up some cash to live on.
Now, there was one other asset that she had, which was kind of a ticklish asset. She co-owned a property with her ex-husband and the ex-husband had no obligation to sell that property unless he wanted to. And she was the junior partner. She couldn't compel him. So I said, "All right, this is your crown jewel. We're going to put this in a little drawer and see what we can do to get you out of this." And then I brought in one of our litigator experts and we pulled apart the divorce decree and examined every single nuance and war-gamed in advance what we would do if this property ever came up for sale. Then the investor guy got into a little financial trouble himself and called me and said, "Hey Dave, listen, I'd love to sell that property. What I want to do is give my ex-wife 20% and I'll keep the rest." And I go, "That's not what your divorce decree says. Your divorce decree says that she gets 75% and you get 25%." And he goes, "Well, forget it. I'm not going to sell." Okay. Whatever.
And then things got worse and worse and worse for him financially and finally he came back to us. We actually had lined up a buyer for the property as well. The buyer was champing to buy the property and we just wouldn't budge on this one issue. And so finally the guy folded and she got 75% and he got 25%. And that money became a pot of money that will support her lifestyle for the rest of her life and give a good chunk to her kids.
Andrea Vacca:
Amazing.
David Edwards:
And it's all because she had the right advisor with the right list of professionals to truly go big picture on her situation and come up with the best possible outcome.
Andrea Vacca:
Right. Because when she came to you, she had nothing liquid.
David Edwards:
She had nothing liquid. She was borrowing money on credit cards just to pay her grocery bill.
Andrea Vacca:
Unbelievable. So someone who really was wealthy on paper and had a good deal in her divorce and she was getting half the assets, or whatever the assets were, she was getting a large chunk, it sounds like millions and millions and millions of dollars-
David Edwards:
It was millions and millions. And if she had been able to hire us 10 years earlier when she first divorced, none of this ever would've been an issue. But you have to play the cards that you're dealt and now this is where we are 10 years later.
Andrea Vacca:
Right. It sounds like you really were a quarterback here. You really can see, like you said, the big picture.
David Edwards:
That is exactly right. You and I are of the era that remember the old Mission Impossible series. At the start of every episode, after Mr. Phelps got the little tape, he would go into a folder and pick out who was the Mission Impossible team for this particular project. And that's what we did. We have in-house resources, but we also have outside experts. And we bring in the right team, get everybody lined up. It was hilarious. The husband had no idea what he was facing until it was too late.
Andrea Vacca:
He thought she was going to be the same pushover he had during the divorce.
David Edwards:
Exactly. And for the first time in her life, the spouse, the wife actually won versus her husband. She was thrilled with that alone.
Andrea Vacca:
Bravo. When we help our clients divorce, if this person had been our client, we would've had that team together prior. We would've been advising them to have their own advisor, their own investment advisor if they didn't have one yet, make sure they're consulting with somebody so that they're looking long term. How will this work? Will you be able to afford your lifestyle? The team approach is so important during the divorce, after the divorce, maybe before a divorce.
David Edwards:
Her lawyer for her divorce was so bad. I wondered if he was in the pay of the ex-husband.
Andrea Vacca:
Oh my. Well, that wouldn't be the first time that's happened. I have seen that with some... People have come back years and years later and they showed me the agreement, and it's like, "That attorney clearly was not representing your interest. They were clearly working for your husband. Who was paying them? What was their relationship?"
David Edwards:
Yeah.
Andrea Vacca:
Not the first time. Based on this type, on the clients that you've worked with, the people who are listening to this podcast, watching this podcast, are people who are considering divorce or in the middle of a divorce. So what advice would you have for what not to do? What have you seen clients that you're working with, how they might have harmed themselves or not helped themselves during the divorce process that ends up putting them in a worse financial position than they should have been?
David Edwards:
Yeah. Not every one of my clients has the luxury of being able to squander millions before they get to the right solution. More commonly our clients have a million or 2.5 million. And the number one mistake I see during divorce is that the one spouse or both spouses just decide they're going to fight every single issue till the very end, at which point there's no assets left at all.
Andrea Vacca:
The attorneys have them. The attorneys-
David Edwards:
And then the attorneys settle. And I have known families that had to liquidate the kids' college accounts and sell off the family home and run their 401Ks down to zero just to get through the divorce process. I always tell clients there's three ways to divorce. One is the mediated approach, which you're very familiar with because that's what you do. It's easy, it's cheap, it's fast, but both parties have to agree. Once one client decides to not mediate anymore, then you go to the second level of divorce, which is the somewhat litigated divorce. That's what I went through in my first marriage. And it would cost more and take longer, but you'll still come out mostly intact. The third level is that never going to let this thing go until our financial resources are exhausted, and that's just the worst possible outcome.
I had a client who was five years into his divorce, and it was a terrible situation because he had all the wealth. So under New York State law he was obliged to pay for his legal expenses and her legal expenses. So the lawyers just kept going back around and around and around. They were loving it. And I finally wrote him a letter and said, "Dear client, this divorce is robbing you of your own money and your child's money. What can you do to resolve this quickly?" And he took that letter to the judge and the judge said, "Settle this thing tomorrow," and it was done. Five years, one letter, done.
That's part of our work as wealth advisors, is to... Oh my God, we've been down this road before. In my case, I've been through the divorces of 25 clients plus my own. We've been down this road before. Here's what you can do to short circuit the process and save yourself some money.
Andrea Vacca:
Right. So the best piece of advice you have there is don't fight just for fighting's sake. See where you have some room to negotiate. We do mediate, as you mentioned. There's this other option, though. If mediation is not the right process and before the litigation, even if it's a fairly amicable litigation, is that collaborative process. So staying at a court, having attorneys that are both very settlement oriented, aren't going to just make this a fight because they're benefiting. It's giving them money and their kids are going to go to private school, even if you have to pull your private school funds out, can't send your kids to college. So that's always an option.
Anything else that you've seen, other than the unnecessary fighting?
David Edwards:
That's the main thing. The kind of clients that we work with... In the olden days the husband would have a secret business or a secret family or something, and that's just not possible anymore. We know everything and see everything. I mean, divorce is... The only thing worse than divorce is death. And it's particularly brutal on the person who didn't want to get divorced in the first place. That was me. No one was more surprised than I was. And I just sought out a therapist I worked with on another issue years before and just talked it through with him. And he said, "Yeah, this marriage is over. That's the reality of the situation. Can you find it in your way to make it as painless as possible?" And I did. My outcome was terrific. I got custody of the kids and child support, which was the infinite surprise of my ex-wife.
Andrea Vacca:
She wanted the divorce. Yeah. And that's another great tip: coming to the realization as soon as possible, dealing with your emotions, dealing with your, "What just happened? I didn't know things were so bad." We hear that a lot. But if you can accept it, that this other person no longer wants to be married to you, then you're going to be able to make better decisions. Better financial decisions, legal decisions, because you're managing your emotions.
David Edwards:
Yeah. And there is good news. On the far side, life gets very interesting. Yeah. I was married for 25 years, divorced at age 50. Well now what? I'm 50 years old, I'm single, I'm financially well off. What can I do? Where can I go? And it was really entertaining. And now I'm happily remarried again.
Andrea Vacca:
Yes you are. I know you are. So let's see. If somebody were listening to this and they were in the position where their spouse was the person who had the relationship with their investment advisor, their wealth advisor, their bankers; whoever help them, and now they're looking for somebody new. They're looking for somebody to help advise them individually or invest their money. What do you do? How do you go about finding that person? Because there are so many of you out there.
David Edwards:
That's for sure. But there is good news. Aside from our firm, there are a number of firms, particularly in New York City, that specialize in divorced women. Particularly the divorced women that were not the financial people. And they're usually women-run firms with women staff and a much kinder, gentler way of dealing with financial affairs than most. We happen to have a number of divorcees among our clients. Because although I'm a hard-nosed numbers guy, I'm also very sympathetic to a lot of people's problems. And then I've got other advisors here as well who are very sympathetic to someone in an uncomfortable situation, and are willing to take the time to educate.
Yeah. I always used to say that if you wanted to build a house and you met with an architect and before you could say a word the architects are rolling out blueprints, you'd be like, "You're fired. You don't know if I want a colonial, or a ranch, or a Victorian, or a two-car garage, or a three-car garage, or a putting green, or a pool. You don't know anything about me. How come you're showing me blueprints?" And it's the same reaction I get when I hear someone says, "Oh, you're divorced. You should look at our ETF strategy, or you should look at our annuity strategy, or you should look at our opportunity zone strategy." Well, that's the solution before we even know what the problem is.
Basically look for firms that specialize in divorcees, look for firms like ours, which have killer Google reviews. I think we're the highest ranked firm in New York City based on Google reviews, because we've significantly transformed family's lives for the better. Not just divorcees, but other families moving up through the stages of life.
Andrea Vacca:
Right. What do you do at that first meeting that would set you apart? And I want to just be clear: it's not always the woman who isn't the financially savvy person or partner.
David Edwards:
That's absolutely correct. That's absolutely correct.
Andrea Vacca:
Yeah, there's men too. Like you said, everyone has a role in their relationship, in their marriage, and it's not good or bad. And more and more I'm seeing men who... they may be making more, but they're not really financially savvy. They just know how to make money.
David Edwards:
You know these statistics as well as I do. The couples that are most likely to stay together, the husband makes slightly more than the wife. And the families more likely to divorce are where the husband makes significantly more than the wife. And the most at risk is where the wife makes more than the husband. And then also you have gay couples now and that is a whole nother dynamic. So yeah. I have a couple of client families where the husband say, "Look at my wife. She's making so much money. What's the point? And who's going to take care of the kids?" Well, that person would be the person at risk in a divorce.
Andrea Vacca:
Right. So if somebody comes to you, not the financially sophisticated spouse, what do you do to find out... Play the role of the financial architect here. What are you doing? What's the first step?
David Edwards:
People are mostly terrified of financial advisors, because mostly they think we're the Wolf of Wall Street, that movie. And I laugh, because I started my job on Wall Street three years before Jordan Belfort. Oh yeah, I remember those days. It was pretty nuts. But it's been a couple of decades since anybody you work with on Wall Street is a sleaze. Those people have long been weed out. At our firm we actually have on our website the six steps it takes to become one of our clients, and the first step is the hot topic conversation. Why are you calling us today? And sometimes it's divorce, and sometimes it's childcare, and sometimes it's aging parents, and sometimes it's a second home, it's retirement. What is the hot topic today? Why did you call us? And then in the olden days, we'd hand out a eight-page questionnaire and ask people to fill it out. No one has time for that anymore.
Andrea Vacca:
True.
David Edwards:
So in the course of that hot topic conversation, we'll get as much basic information as we can, type into our computer. Kind of like when you go for your annual physical, the doctor's just typing stuff right into the computer, or the RN. And that's what we call the base case plan. What do we know so far? It might be 80% of the available data.
And then a few weeks later we'll take the client through the first review and we'll show them what we've learned about them, show them our technology, show them that we've heard them, so important, and also show them they can start asking what if questions already. Like, "Well, what if I'm getting $20,000 a month in alimony and the apartment I want to get is $10,000 a month. Can I afford that apartment?" Maybe, maybe not. If that's your only income, 20,000, then you have a problem. If that's 20,000 on top of your six figure salary as a law partner, well then it's fine. And most people can't imagine more than six months into the future. We can show people five years, 10 years, 30 years into the future. That's what we call the first review conversation. That's part six.
If someone says they want to hire us at that point, and usually they do, we say, "Great, awesome. We have a 14-page advisory agreement. It's plain English, you can cancel it at any time. But this conversation is creating rights and responsibilities on both sides. We need you to know exactly what we mean by financial planning, investing, tax planning, estate planning. We need to see all these disclosures. If you sign that, great."
We'll go on to the next step where we actually go through a process of clarifying and simplifying someone's financial life. People have accounts all over the place, a 401K they forgot about, seven checking accounts for some reason. We go a through process of clarifying and consolidating and getting into as few accounts as possible where each account has a specific purpose. This is my checking account for my monthly expenses. This is my retirement account that I won't be touching for 20 years. This is the account I need for my kids' college in five years. And we assign each account its own purpose and its own investment strategy. Then we complete the onboarding process, update the financial plan, and then schedule the three-month, six-month, 12-month check in and then do it all over again next year. Usually every year.
But what I like most about our technology these days is that our financial plan is continuously updated with live data. In the olden days we'd have to go back to spreadsheets and update tons of stuff by hand before we can answer a question. And these days people can call us whenever they feel like it. A client called me 10 minutes ago. He needs money for his tax bill this year. Yeah. Click, click, click, click, go. Here's your answer. People do not have time anymore for long, complicated explanations. They just want their problems solved.
Andrea Vacca:
Right. Right. It sounds like you're not giving any advice about what to do, obviously, until they retain you. That first meeting it's really about them and what you're seeing and what you're identifying, and talking about their concerns and why... You can see why they're concerned or maybe that they don't need to be concerned in that moment. It could go either way.
David Edwards:
Correct.
Andrea Vacca:
But then what to do.
David Edwards:
The financial plan leads the investment plan. The investment plan cannot be done until the financial plan is done.
Andrea Vacca:
Right. So anyone trying to sell those annuities, or insurance policies, or-
David Edwards:
And annuities have their purpose.
Andrea Vacca:
Sure.
David Edwards:
If we think it's appropriate, we'll loop in an annuity salesperson.
Andrea Vacca:
But before you know-
David Edwards:
But we're hiring the annuity person, not the client.
Andrea Vacca:
Right. Before what the need is and what the concerns are. Okay. All right. Are there any common fears that you hear from people after divorce that you help with, that you can help alleviate?
David Edwards:
The common fear of every client of ours is this: will I be okay? And I totally get it. Being a financial planner, being an investment expert is not a skill that we learned in high school. Frankly, it's a skill that most people never touch. And so, where things are super obvious to me for the next 30 years, because I've been doing this for 45 years, it's not obvious to the average person. And what I love the most about my job is taking fear and converting it into joy. Because before I was afraid I would run out of money and be homeless, and now I'm joyful because I know I'm going to be okay. I'm going to be able to travel in retirement, I can leave money for my kids; everything's going to be fine. Fear to joy.
Andrea Vacca:
I love that image, from fear to joy. And what you can do with that, that vacation now you can take, the life that you can live, the apartment you can live in, the home; whatever it is. To not live in fear.
David Edwards:
My favorite concluding question at the end of every client meeting is, how do you feel right now? And if the client says, "I feel great," then I know I've succeeded. And if they feel uncertain, I go, "Okay, well we're not done yet. We're going to keep going until you feel great."
Andrea Vacca:
Right. You're not going to just cross your fingers and think you did your job and you heard... and you're doing everything you can do, but they might not still be there yet.
David Edwards:
No. I mean, the other thing that's nice is that when you see your accountant it's once a year. When you see your divorce attorney, it's hopefully once in a lifetime. Maybe twice, maybe three times if you're bad at it. Your financial advisor is going to be there for every critical money decision you make for the next 30 years. And for us now, we've gone from working matriarchs and patriarchs to their adult children in their 50s. Now we're working with the third generation of wealth. And two of my clients that are 30 years old had their first children this year. Like, "Oh my God. I remember you when you were only like five years old. How can you possibly have a baby?"
Andrea Vacca:
Oh my goodness. So any advice you have for those people that are just getting married and having children as long as-
David Edwards:
Prenup. You need a prenup.
Andrea Vacca:
Prenup. Are most of your clients getting prenups these days? What are you seeing?
David Edwards:
They are. They are. Back in 1989, my first wife and I, we had a prenup. That was because I was marrying into a very wealthy family and I had no illusions about how much pain and suffering I'd face if we ever divorced. Exactly what happened. But that prenup kept my business to me, her business to her, my real estate to me, her real estate to her. We didn't even have a joint checking account. The only topic of conversation was custody of the kids and child support, and that was resolved pretty quickly. We were done in about nine months, which as you know in New York City is pretty fast.
Andrea Vacca:
Yeah.
David Edwards:
These days our families, when they do get married, they're already into their mid 30s, even their 40s, and they already have professional careers behind them and they've got accumulated assets, 401Ks. You need to separate those assets out, declare them as premarital assets. And then also intellectual property. Someone happens to be a playwright, or someone happens to be a patent holder, we need to find that. And whenever the clients rebel and say, "Oh my God, this is so unromantic," I go, "It's totally unromantic. You know what else is not romantic? Marriage. Marriage is not about love, it's about a business partnership. You're going to get married, you're going to have assets, you're going to have children, you're going to have property. All right? You would never launch in any other business partnership without some paperwork. Same thing here. Don't take it personally."
Andrea Vacca:
Absolutely.
David Edwards:
Now, we do have a situation sometimes where one person is like, "Oh yeah, I'm a hedge fund guy and I'm all about prenups." And the other person is, "Well, I am first generation going to college and I'm terrified of this prenup thing." And so, then you have to counsel them a fair bit and tell them, "Here's how it works. This is the process." Oh, hey audience, Andrea did my prenup for my second marriage.
Andrea Vacca:
I did. I did. It was a wonderful experience working with you.
David Edwards:
It was a very smooth, easy process, because my wife, who's also a financial advisor, she chose the trust and estate attorney and then we had Andrea on the prenup side. They got together to resolve all of the second marriage issues, because I have two children for the first marriage, she has nieces and nephews. We need to figure out a process to handle all that. And then having done the prenup, it rolled right into the estate plan.
Andrea Vacca:
And what I'd loved working about with you is that it was very, what I call conscious coupling. You've heard of unconscious coupling for divorce. Well, what we do with helping our clients, when they will allow it and can do this with their future spouse, is a conscious coupling. I gave you advice, we talked about your concerns, about what your goals were, what your fiance's goals were, and then you would have conversations with her and you two would get on as much of the same page, let the attorneys know where there were some sticky areas, what you needed advice on. And it was so nice to work with the two of you. It was just this very team approach, really, the four of us working.
David Edwards:
Yeah, it absolutely was. We were building a house and you guys were the architects.
Andrea Vacca:
Yeah. It was nice.
David Edwards:
The nightmare scenario is when the one spouse gets a prenup three weeks before the wedding from the other spouse, and it's 600 pages long. Okay. Fail automatically. That prenup is automatically invalid. But I actually knew a situation where the bride called off the wedding. She's like, "Oh my gosh, you're going to treat me this shabbily before we even get married. I'm out."
Andrea Vacca:
We've seen it happen.
David Edwards:
Do not treat that prenup, future husbands, those wives, as some sort of combative thing. It's got to be a partnership.
Andrea Vacca:
Don't do that. Right. All right. Well Dave, I really appreciate your time. And look, the last thing I ask all my guests is if you have a better divorce tip. If I were to ask you that, what would you say is your one better divorce tip?
David Edwards:
I'm going to give a pre-marriage tip and a post-marriage tip. The pre-marriage tip is, yeah, get a prenup. Just do it. 5,000, $10,000, whatever. Just do it. The post-marriage tip is, hey, even if one partner takes the lead on finances, the other partner should be on every single email. And even when one partner emails me, I always email both partners back. I mean, because the worst case scenario for me is that one partner feels like I'm ganging up against him or her and supporting the other partner. And I've been through 25 divorces of my clients. I've retained all but three both sides because I was even handed coming into the divorce and even handed through the divorce. And then after it was over, I said, "There's now a Chinese wall. I will not discuss back and forth your situations." And then people trust me and they stay with my firm.
Andrea Vacca:
You're better divorced tip for those who are not yet... are maybe contemplating divorce or maybe happily married and are listening to this, start getting involved with the financial advisor. Have as much of a... Be on some emails, have some kind of relationship so what's going on.
David Edwards:
You got to be on the emails, you got to go to the meetings. Even if you feel like it's over your head, it doesn't matter. You need to have as good a relationship with the advisor as the other partner.
Andrea Vacca:
Right. Right. So you can be as well informed as possible and create your own new financial future.
David Edwards:
Correct.
Andrea Vacca:
Great. Well thank you so much, David, for joining me today.
David Edwards:
Oh, pleasure.
Andrea Vacca:
What's the best way to reach you?
David Edwards:
David Edwards, and then the website is Heron, H-E-R-O-N, wealth.com. And my direct line is 347 580 5288.
Andrea Vacca:
Wonderful. Thank you. Well, this has been another episode of A Better Divorce podcast. Thank you for tuning in and we'll catch you on the next episode.
You've been tuning into another episode of A Better Divorce podcast with Andrea Vacca. Thank you for subscribing, leaving your positive comments and reviews, and sharing the show with others. You can watch episodes at vaccalaw.com, YouTube, LinkedIn and Facebook. And you can listen through Apple Podcasts, Spotify, Google Podcast, and more. Bye for now. And remember, you can have a better divorce.
David Edwards is president and wealth advisor with Heron Wealth, a $500 million registered investment advisor based in New York City working with 225 client families across the U.S. and around the world.
At time of publication, Edwards and/or his clients held positions Amazon, Apple and Google.