This is where a CFDA® can assist an attorney… Attorneys attend law school to become experts in the law, not to become financial experts. Additionally, even when experienced attorneys have accumulated a high degree of financial expertise, they are not allowed to testify on behalf of their clients in court. Therefore more and more attorneys 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.
Many cases involve intricate details such as; pensions, executive compensation/restricted stock awards, state and federal plans, businesses, real estate, capital gains, etc. Now, crypto currency is impacting a larger and larger portion of divorce cases too. Both spouses are entitled to know and understand the marital benefits/assets. Not all details will show on the monthly or annual statements.
An appropriate time to meet with a CDFA® is when you are thinking of divorce. There is essential planning that needs to be considered before you separate. If you are later in the process, find a CDFA® as soon as you can. You truly want to make sure that you understand your financial picture now, during separation/divorce and for the security of your financial future.
What Is the CDFA®'s Role?
To understand this role, we first must distinguish between a CDFA® and other financial experts, who go by various titles, such as: Chartered Accountant (CA), Certified General Accountant (CGA), CERTIFIED FINANCIAL PLANNER ™ (CFP®), and Chartered Financial Consultant (ChFC®).
Financial Planners Help Clients Achieve Goals
The role of the financial planner, CFP® or ChFC® is to help people achieve their financial goals regardless of whether they are divorcing or happily married. 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. The financial planner keeps the client moving toward stated objectives.
Accountants Examine Details for Present Day
Conversely, accountants 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®'s Responsibilities and the Team Approach
To best meet the needs of a divorcing client a blend of these two ideologies is needed. The Institute for Divorce Financial Analysts (IDFA) created – the Certified Divorce Financial Analyst® (CDFA®). A CDFA® is someone who comes from a financial planning, accounting or legal background and goes through an intensive training program to become skilled in analyzing and providing expertise related to the financial issues of divorce.
The role of the CDFA® is to help both client and lawyer understand how the financial decisions made today will impact the client’s financial future, based on certain assumptions. The CDFA® can also show the divorce team the financial effect of any given divorce settlement.
If you need additional help, consider hiring a CDFA® for:
Identifying the short-term and long-term effects of dividing property.
Integrating tax issues.
Analyzing pension and retirement plan issues.
Determining if the client can afford the marital home – and if not, what might be an affordable alternative.
Help clients develop a budget and identify their future financial goals
Establishing assumptions for projecting inflation and rates of return.
Drafting a QDRO (Qualified Domestic Relation Order)
Bringing an innovative and creative approach to settling cases.
Appearing as an expert witness if the case should go to court, mediation or arbitration proceedings.
*Information taken from the Institute for Divorce Financial Analysts (IDFA), with permission
Example 1:
Clients decide to divide everything 50/50.
Seems fair, correct? Often that is how settlements are drafted.
However, 50/50 isn’t always fair. How would you feel if you later found out that you had to pay taxes on your assets when you wanted to access them, while your spouse did not?
Example 2:
If the marital portion of your spouse's Pension plan was different than reflected on the statement, would you know?
Pension retirement plans are something that require precise calculations to determine the marital portion. The balance shown on an account statement does not always show the full marital value to be divided.
What is a CDFA®?
A Certified Divorce Financial Analyst*
According to the Institute for Divorce Financial Analysts (IDFA), the role of the CDFA® is to assist the client and their attorney to understand how the financial decisions they make today will impact the thier financial future.
Insights Everyone Must Know
Splitting income and assets 50/50 may be the easiest option, however, it may not be the best one. Learn your options.
Each person’s tax rates may be different post-divorce, some assets are taxable while others are not, and statement values may not reflect the total, true value.
Multiple Retirement Plans, Pensions, Restricted Stock (RSUs), 457s, Businesses and Real Estate all bring complexity to a divorce. Make sure you know all the details before you make decisions.
Divorce can provide opportunities for college planning that hadn’t been there before. This is especially true for business owners. Understanding this planning can have a tremendous impact on the family’s overall finances.
One of the most important aspects of a divorce is a QDRO (Qualified Domestic Relations Order). Understanding the types of retirement plans, benefit options, and distribution options can be critical. Often these plans involve substantial sums of money. Many do not realize that QDRO(s) can be used for child support, alimony, and attorney fees.
Some implications don’t naturally show until years later. The time to learn is before the divorce settlement.