Why you need a Certified Divorce Financial Analyst® professional on your team
Divorce happens. It can be scary, a time of significant change, and teeming with unknowns. In even the most amicable of divorces, the end of a marriage can be an emotionally draining endeavor. Not the ideal time for making future altering financial decisions.
What Is a Certified Divorce Financial Analyst® professional?
A CDFA® professional is an expert in dealing with the financial intricacies of divorce. The CDFA® helps organize the financial data, establish priorities, create projections for the future, evaluate settlements, and then helps develop a plan to move forward. We also attempt to mitigate the turmoil by showing divorcing clients what is worth negotiating for and what may need to be let go.
A CDFA® professional can help at any stage of the divorce process but can be most valuable if contacted when thoughts of divorce initially arise. Can you afford to keep the family home? Will you need a higher-paying job to maintain a similar lifestyle? These are often questions that we would be able to help answer. We can also help show what your financial future might look like if you were forced to choose divorce and help get a solid financial foundation before the divorce is final. Once the back and forth begins, emotions heighten, and sometimes poor financial settlement decisions are made in moments of weakness or due to lack of knowledge.
Going through a divorce can also require significant homework. Most CDFA® professionals will have financial software that can help gather and organize data, as well as make needed calculations in regard to income, expenses, assets, and liabilities. In many cases there is one spouse that was significantly more involved in the household finances while the other spouse was contributing to the family in other ways. The less involved spouse may need education and insight pertaining to the ins and outs of their current financial condition.
If a divorce is already underway, a CDFA® professional can provide in-depth analysis of the short- and long-term financial effects of a proposed settlement. Some assets grow fast, some may decline in value quickly, some are taxed at higher rates. There is an exhaustive list of factors that need to be considered. We can project what a client’s life might look like 5,10, or 20 years down the road if they were to accept the settlement and how we can strive to improve the outcome. You don't want to be blindsided by loss of value, tax implications, and even legal liability for decisions you make in "the fog of war."
A CDFA® professional can also offer guidance on other issues that are not always thought about during the divorce process. This would include health insurance, changing over auto insurance, and evaluation of Social Security benefits. We can also help value pensions and draft QDROs.
Once the papers are signed, we will partner with you to build your fresh start. We can first help execute the orders of the divorce decree - beneficiary changes, rollover, updated will, etc. Next, if there was an initial financial plan created, it can now be updated to what was actually received. If a divorcee does not yet have a plan in place, it is time to build one and to help protect the assets they were awarded.
CDFA® professionals also have a responsibility to hold clients accountable. There are rarely do-overs with divorce, and that chunk of money that was meant to last at least years if not a lifetime does not need to immediately evaporate.
In addition to serving as an advocate for one spouse, a Certified Divorce Financial Analyst® can instead act as a neutral financial professional. We can guide you through the division of assets, show what each party needs going forward and the best strategy to make the incomes that were previously supporting one household now support two. Once the decisions have been made, you can take the documents to your own family law attorney to be finalized. This option is for those couples that can still work together amicably and are focused on fairness.
How is a CDFA® professional different from an attorney or other financial advisors?
A CDFA® designation is not a legal degree and therefore a CDFA® professional does NOT provide legal advice. The role of a CDFA® is to assist and compliment the attorney, not replace the attorney. What many people do not realize, however, is that lawyers are experts in the law, but they do not necessarily know how to answer intricate financial questions that concern retirement plans, capital gains, dividing pensions, etc. We can serve as a data collector, financial expert, and reality checker to keep clients’ expectations in line.
Financial advisors are generally taught to plan for individuals and couples, but not for those in the process of divorcing. Traditional financial planning training doesn’t prepare advisors for the delicate yet destructive nature of divorce. Many times, advisors are only called to this specialization after experiencing their own divorce and realizing the lack of resources available.
Mistakes during divorce can be costly. Misunderstandings of tax consequences, retirement plan nuances, and asset valuations can amount to tens of thousands of lost dollars. It's always hard when you don't know what you don't know. The ultimate goal of New Path Planning is to help clients understand their financial reality so that they will feel more empowered and confident in their decision making and future.
Kristi Tidwell, CFP®, CDFA® is a wealth advisor at Branning Wealth Management and founder of New Path Planning. The focus of New Path Planning is to provide creative financial solutions at all stages of the divorce process.