Although most professionals understand the need for advice that’s specifically geared to the financial issues in divorce, occasionally, a potential client asks me why they need a Certified Divorce Financial Analyst (CDFA). When so much money is already being spent on legal fees, does the average divorcing client need a specialized financial expert? The reality is that for many cases, none of the other professionals, be it a lawyer, accountant, business appraiser or even the couples’ existing financial advisor are specifically trained in the financial complexity of “un-coupling” the marital estate.
Considering that a divorce is likely to be the largest financial event in a person’s lifetime, it’s critical to get specialized advice. That’s where a CDFA comes in; a professional who is trained both by education and practical experience, specifically in the divorce financial planning arena. This article describes some of the unique ways CDFAs help divorcing clients.
Deep Dive on Cash Flow Management
Most financial advisors focus on portfolio management, tax planning strategies, retirement planning and so on. Very few take a deep dive into cash flow management (i.e. budget development). There are good reasons for this. The financial advisor’s role centers around forward planning. Unless a client reports a debt problem to their advisor, it is assumed they have a handle on their cash flow.
CDFAs, on the other hand, are trained to coach clients through the exercise of writing out and understanding their current cash flow needs. In fact, this is a critical part of the divorce process that often gets overlooked when clients work without a CDFA.
Most states don’t have spousal support and/or alimony guidelines. The starting point for negotiations in those states is often based on financial need and ability to pay. If a client can’t establish their financial needs (with a detailed budget), how can their attorney advocate on their behalf? Clients often forget to include post-divorce expenses they do not currently incur, such as health insurance, babysitters and new work expenses.
Creating a budget also helps a client who never managed the finances during the marriage understand the reality of their situation. For example, they might not be able to maintain certain extracurricular expenses for the kids or maintain upkeep on the marital home. How do they factor in inflation? This is where the CDFA’s specialized training can help.
Division of Assets
What are the best assets for each client to receive as a result of the divorce? Sometimes, simply dividing each asset in half is not in the best interest of one or both parties. One person may have a different risk tolerance than the other and may want to reposition their investment holdings. One person might have a greater need for liquid cash today, and the other might be more concerned about retirement.
The CDFA’s job is to work with one or both clients to help them determine which of the marital assets are best suited for their particular financial circumstances. This is where the advisor’s expertise in investments of all kinds (including employment-related benefits such as deferred compensation insurance products, annuities, stocks, bonds, mutual funds and real estate) adds a layer of expertise that complements the attorney’s knowledge and scope of work.
Specialized Training and Experience in Legal and Tax Topics That Are Applicable to Divorce
Experience in the divorce field may be the most important reason to use a CDFA. There are specific tax laws that only apply to divorce. These laws might be unfamiliar to a financial advisor who does not often come across those rules in their general practice. It is also critical for advisors to understand the legal environment in which they are operating. For example, every state has different laws relative to the division of property, marital versus non-marital assets, alimony, child support and other holdings. An experienced CDFA can help their client set realistic expectations as well as provide the most effective reports to support the client’s positions.
If you or someone you know is considering divorce and needs assistance, the CDFAs at Pearl Planning are always available for consultation.
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