Most couples seeking divorce are aware that they will likely require help from a divorce attorney. Fewer couples realize that as they enter the nuts-and-bolts of the divorce process, they will have many questions about the financial side of divorce. Questions such as:
- Who will pay for their children’s education and medical treatment?
- How do we calculate the value our assets?
- How should we divide these assets?
- Who pays off our debts?
- What tax issues will we face?
- How do we divide retirement funds, pensions, stock options, real estate, etc.?
- Can the lower-earning spouse get alimony and if so, how much?
- Should they sell the family home?
- How can I afford to live on just my salary?
Often, divorcing couples pose these and other financial questions to their legal team. This may not be the best place to look for such advice, and here is why. Lawyers attend law school to become experts in the law, not to become financial experts. Consequently, they are not the best source of advice on the increasingly complex financial side of divorce. This is why more and more divorce lawyers are bringing in Certified Divorce Financial Analysts (CDFAs) to advise clients on finances throughout the divorce process. In addition, many couples are starting their divorce process by directly hiring CDFAs to help them nail down the financial issues even before they consult a divorce attorney.
So, just what is a CDFA and how do these professionals differ from other financial experts, such as Certified Financial Planners or accountants/CPAs?
The role of a Certified Financial Planner® (CFP®)is to help people achieve their financial goals, typically over the long-term. For example, they often help clients develop a savings strategy for retirement or in order to provide for higher education for children. They assist in choosing investment plans and have a variety of tools to achieve this. CFPs also monitor the investment portfolio over time, working with clients when things change such as shifts in the market, a job change, etc., fine tuning the plan on a regular basis.
Accountants (CPAs)usually focus on the finances of clients in the present-day, and typically do not project further into the future. They prepare and file income tax forms, and may assist in working with small business owners to track expenses and taxes owed on earnings, for example. If called in on a divorce, they might calculate the taxes on dividing property combined with the effect of child support and spousal support over a very short period of time. Or, they may perform an audit of account activity of each spouse, orperform forensic accounting functions to help uncover any “hidden assets” or debts.determine the value of a business.
A CDFA professionalusually comes from a financial planning or accounting, but goes through a rigorous certification program to gain added skills in analyzing and providing expertise related to divorce finances. The role of the CDFA is to help both the client and lawyer understand how the financial decisions made during the divorce process will impact the client’s financial future. For example, as a member of the legal team, or as a consultant to one or both spouses separately, a CDFA will:
- Identify short- and long-term effects of asset division
- Integrate any tax issues for settlement scenarios
- Estimate current values of pension and retirement plans
- Calculate the cost/benefit analysis of keeping or selling the matrimonial home
- Evaluate client’s insurance needs
- Project potential inflation and rates of return on assets
- Offer alternative approaches to settling cases
The CDFA professional may also:
- Provide data that shows the long-term financial effect to spouses of any given divorce settlement
- Appear as an expert witness if the case goes to court
- Assist with financial analysis in mediation or arbitration proceedings
- Have background knowledge of the legal issues in divorce
- Help clients identify their future financial goals
- Develop a post-divorce budget
- Determine when retirement is possible.
- Identify an affordable life style for client and if they can afford to keep the home.
- Help determine costs of children’s education
Engaging the skill sets of a CDFA to crunch the numbers with an eye on future outcomes can provide a unique financial perspective few divorce attorneys can offer. In my next blog post, I will offer some examples of how a CDFA, such as myself, can impact divorce settlement discussions with proof points that are difficult to ignore. If you want to schedule a consultation with me regarding your divorce finances, call me at 832-858-0099.