Certified Divorce Financial Analyst®

Why Hire a CDFA® Professional?

To avoid common mistakes like:

• Negotiating to retain the marital home when the client cannot afford it
• Not obtaining complete information on all retirement plans, employee benefits, and stock options
• Not evaluating the defined benefit pension plan correctly
• Thinking that retirement assets have the same value as an equal dollar amount of non-retirement assets
• Not understanding the different division methods of a retirement asset and not knowing which one is in your client’s best interest
• Not understanding the purpose of a Qualified Domestic Relations Order (QDRO) or the need to get it completed and filed at the time of the divorce or immediately after the divorce is final
• Not looking at the long-term impact of a financial settlement
• Failure to factor in inflation and investment returns when looking at the long-term impact of a settlement, or using unrealistic numbers in the evaluation
• Not being aware that it is possible to take a distribution from a retirement plan prior to age 59 1/2 and avoid the 10% penalty
• Not protecting the survivor benefits for the non-employee spouse
• Not protecting spousal and child support payments through life insurance
• Not understanding the importance of making the spouse who receives the spousal and child support payments the owner of a life insurance contract
• Improperly structuring spousal or child support payments
• Using a QDRO to try to divide an IRA
• Making isolated financial decisions versus looking at the big picture and analyzing how each financial decision impacts other decisions
• Not taking into account transaction costs when evaluating a settlement offer
• Failing to understand the tax implications of alimony payments versus child support payments in pre-2019 divorces
• Believing that a 50/50 division of property is an equitable division of property
• Not understanding methods or tax implications of dividing stock options
• Failing to consider the cost basis of property
• Not understanding the capital gain taxes upon the sale of the marital home or how the sale can impact each party
• Not understanding how to divide debt
• Not taking into account the effect of deferred taxes when dividing the assets

Here is a perfect example: After his divorce, David went to a financial advisor (not a CDFA® Professional) to determine how to best position his assets. Together, David and his planner decided to do a total financial plan for him. During the planning session, it became apparent that during his marriage his wife had done all of the investing. She chose all the investments, made all the decisions, and invested all the money.

At the time of their divorce she said, “Let’s just split everything 50/50. You take this half of the assets and I will take that half. Is that OK?” David answered, “Well, I guess that sounds pretty fair. That’s OK with me.”

Unfortunately, there was something he neither knew nor understood; neither did his lawyer, and neither did the judge. They didn’t realize that David would have to pay taxes on his half of the assets when he tried to access them. His ex-wife, on the other hand, could access her half of the assets tax-free. His 50/50 split was more like 30/70. Had David met with a CDFA® professional before the divorce was finalized, he would have been in a better position to ask for a more equitable settlement.

This parable has an unfortunate ending, but pre-divorce financial counseling can help people thinking about or going through a divorce arrive at a settlement that is fully understood by all involved.

Who do people turn to for such assistance? When people think about getting a divorce, the first professional that comes to mind is a lawyer. Typically a financial advisor—whether it is a CPA, CFP®, or a CDFA® professional—is not considered until later in the divorce process—or even until after the divorce is final.

Our CDFA® Professional and Master Financial Coach® are vital for those working on divorce-prevention or divorce-preparation. Financial problems can tear a marriage apart, and are often the primary factor that leads to divorce. Once a decision to separate or divorce has been reached, all sorts of questions bubble to the surface. These questions are often clouded by wounded emotions and accompanied by mutual accusations, which comes as no surprise. If a couple cannot solve their financial difficulties while the marriage was underway, it is unlikely that they will be able to agree on pressing financial issues when it has fallen apart.

Many divorcing couples have questions such as:

• Where will the children live?
• Who will pay for their education and medical treatment?
• How do we value our property?
• Who gets what property?
• What tax issues must we be concerned with?
• How do we divide retirement funds and pensions?
• How will the lower-earning spouse survive financially?
• What additional financial support does that person need?
• Who gets the house?
• What happens if a paying ex-spouse dies?

These are the questions that family law lawyers face with each divorce case. Many lawyers struggle with the intricate financial details that concern tax issues, capital gains, dividing pensions, and so on. Lawyers attend law school to become experts in the law, not to become financial experts. Additionally, even if lawyers happen to have accumulated a degree of financial expertise, they are not allowed to testify on behalf of their clients in court. This is why more and more lawyers have seen the virtue of bringing a financial expert into the divorce process at the very start. Solid information and expert analysis are important resources in their search for the best possible resolutions for their clients.

Fortunately, with the advent of CDFA® professionals, help is on the way.

What Is our CDFA® Professional’s Role?

To understand this role, we first have to distinguish between a CDFA® professional and other financial experts, who go by various titles, such as: Certified Public Accountant (CPA) and Certified Financial Planner® (CFP®).

Financial Planners Help Clients Achieve Goals

The role of the Certified Financial Planner® (CFP®) is to help people achieve their financial goals regardless of whether they are divorcing or happily married. After identifying those goals, the next step is to take an inventory of the clients’ current assets and liabilities, then examine what must be done to achieve those goals. Some goals might be reached within a year; others could be realized 50 years down the line. To look that far into the future, certain assumptions must be made. These include income, expenses, inflation rates, interest rates and rates of return on investments. After these assumptions are settled on and adjusted for changes, the scenario must be reviewed on a regular basis. If during the review process the planner determines that the client is not on track, he or she will recommend a number of necessary or advisable fine-tunings. In other words, the financial planner looks at financial results in the future based on certain assumptions made today, and keeps the client moving toward stated objectives.

Accountants Examine Details for Present Day

Conversely, accountants (CPAs) typically confine themselves to examining the details of a present-day scenario. If called upon to participate in a divorce proceeding, 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. They typically do not project further into the future. They also may be retained to perform an audit of account activity or to perform forensic accounting functions to help uncover “hidden assets".

CDFA® Professionals’ Responsibilities and the Team Approach

To best meet the needs of a divorcing client a blend of these two ideologies is needed. To meet this need a new professional designation was created—the CDFA® professional. The role of our CDFA® professional is to help both you and your lawyer fully understand how the financial decisions made today will impact your financial future, based on certain assumptions.

Our CDFA® professional comes from a financial planning background and has gone through an intensive training program to become skilled in analyzing and providing expertise related to the financial issues of divorce.

Our CDFA® professional:

Becomes part of the divorce team, providing litigation support for the lawyer and client, or becomes a member of a Collaborative Law team. In either event, the CDFA professional will be responsible for:

• Identifying the short- and long-term effects of dividing property
• Integrating tax issues
• Analyzing pension and retirement plan issues
• Determining if you can afford the matrimonial home—and if not, what might be an affordable alternative
• Evaluating your insurance needs
• Establishing assumptions for projecting inflation and rates of return
• Bringing an innovative and creative approach to settling cases

Our CDFA® professional also:

• Provides you and lawyer with data that shows the financial effect of any given divorce settlement
• Appears as an expert witness if the case should go to court, or in mediation or arbitration proceedings
• Is familiar with tax issues that apply to divorce
• Has background knowledge of the legal issues in divorce
• Is trained to interview you so as to:
• Collect financial and expense data
• Help you identify your future financial goals
• Develop a budget
• Set retirement objectives
• Identify what kind of lifestyle they want and can afford
• Determine the costs of their children’s education