Rightfully so, the first professional people think of turning to when faced with a divorce is usually a divorce attorney, an expert in divorce law. However, most of the discussions in a divorce are addressing financial issues and it is not uncommon for divorce attorneys to struggle with the financial details of taxes, capital gains, dividing pensions and budget analysis. It is becoming more common place for lawyers and individuals to bring a financial expert into the divorce process. A CDFA is not a substitute for an attorney, it is in addition to your legal representation.
What is a Certified Divorce Financial Analyst?
The CDFA is a designation and not a law degree. This trained professional usually comes from a financial planning, accounting, or divorce law background and has passed a qualifying exam given by the Institute for Divorce Financial Analysts®. They must also hold a bachelor’s degree and have at least three years of professional experience or 10 years of applicable work experience as a financial professional, matrimonial lawyer or accountant (if they don’t hold a bachelor’s degree). In essence they have both the education and the practical experience a divorcing client will benefit from.
The expertise this professional possesses is a blend of a Certified Financial Planner® and an accountant. The Financial Planner makes projections into the future regarding cash flow and goals and an accountant will examine the present impact of taxation on property division.
During the Divorce Process
The role of a CDFA during the divorce process is to help the client and the attorney understand how the financial decisions they are making today impact the future. They also have training in financial forensics and know how to discover assets and sources of income their clients’ future ex-spouse may be hiding. The specialized software they use helps analyze real property, expenses, retirement accounts, pensions, and life insurance. The cash flow projections (based on assumptions) can show decades of income and expenses and the financial vulnerabilities that might be faced at different life stages. However, the most important role they play will be that of an advocate. They help level the playing field for clients who feel at a disadvantage due to lack of financial knowledge and/or previous exclusion from the family finances. They will help the client navigate the emotional turmoil and aid in making the best financial decisions possible.
After the Divorce
Assistance in realistically determining a lifestyle the client can afford and creating a monthly budget will be of help to those who have never managed finances. Expenses and income need to be closely analyzed. The benefits of filing joint tax returns will go away after a divorce and the CDFA can work with the CPA and financial advisor to do new tax projections based on the new household income and deductions. There may need to be changes in withholdings, estimated taxes, or investments. Updated Estate documents should include a Will, Power of Attorney for healthcare and finances and possibly a Trust. There is a lot to do after the divorce and a referral to a financial planner may be beneficial to help keep on track. A financial planner will create a plan that will take a close look at the budget, insurance needs and how much is needed for retirement.
Getting a divorce may be one of the largest financial events in a person’s life. There is lifelong impact from the decisions that individuals must make while under an immense amount of stress. A CDFA will help you avoid pitfalls during and after the divorce and help relieve the apprehension and confusion about the divorce process.