Divorce can be a difficult and emotional time for many couples and when significant financial assets are involved, the process can become increasingly complex. For high net worth divorcing couples, there are likely many financial decisions to be made which can unfortunately become clouded by an emotionally charged fog and made without enough consideration to both the short and long-term financial impacts. A Certified Divorce Financial Analyst® is qualified to assess the financial decisions negotiated in the divorce process and holds a unique, objective role on the divorce team. CDFA® professionals can help divorcing couples break the fog and make more informed decisions about what their choices could mean for their newly divided finances.
Who is a Certified Divorce Financial Analyst®?
A CDFA® professional specializes in helping clients and their attorneys understand the short and long-term impacts of financial decisions negotiated during the divorce process. CDFA® professionals are certified through the Institute for Divorce Financial Analysts (IDFA™) and are required to have a minimum of 3 years of qualified experience in finance or divorce to pursue certification.
What can a CDFA® professional do in a divorce team?
It is not uncommon for high net worth couples to maintain relationships with a variety of financial professionals so you might be wondering what makes a CDFA® professional so unique to the divorce process. The primary role for a CDFA® professional in the divorce team is to analyze the divorce settlement and help divorcing couples and their legal counsel understand the financial impact of their settlement. That means CDFA® professionals are present in the divorce process, equipped with divorce specific knowledge, and engaged with the goal of achieving the fairest division of assets for the divorcing couple. However, CDFA® professionals are not merely tuned into what is on the table today. They understand that a settlement deemed fair when the divorce is initially finalized may not be the case when it is projected into the future. In addition, a CDFA® professional also factors in a number of important considerations, such as the impacts of inflation, risk and return of the assets being divided, risk tolerance or appetite for the assets being received, cost of living adjustments, changes in custody arrangements, tax impacts, and many others. Another differentiator for CDFA® professionals is neutrality. Since the focus is on the financial impacts associated with divorce settlement decisions, CDFA® professionals are unlikely to have pre-existing relationships with the divorcing parties, placing them in a unique, neutral position to offer objectivity. Other financial professionals who have been working with a couple can unfortunately find themselves facing a conflict of interest when approached with news of their client's divorce.
According to the Institute for Divorce Financial Analysts, a 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-term and long-term effects of dividing property
- Integrating tax issues
- Analyzing pension and retirement plan issues, spousal and child support
- Determining if the client can afford the matrimonial home – and if not, what might be an affordable alternative
- Evaluating the client’s insurance needs
- Establishing assumptions for projecting inflation and rates of return
- Bringing an innovative and creative approach to settling cases
- Is trained to interview clients so as to:
- Collect financial and expense data
- Help clients identify their future financial goals
- Develop a budget
- Set retirement objectives
- Determine how much risk they are willing to take with their investments
- Identify what kind of lifestyle they want
- Determine the costs of their children’s education
Why would I add another party to my team of experts?
The expertise a CDFA® professional brings to the table can and should be a very complementary addition to the divorce process and the team of advisors most recognizable to divorcing couples, such as attorneys, financial planners, and accountants. It is not unusual for a CDFA® professional to have a blend of skills across other areas of expertise and they often hold additional designations, such as the CERTIFIED FINANCIAL PLANNER™ certificate or a Certified Public Accountant license. These financial skills allow those CDFA® professionals to speak a language that attorneys sometimes cannot, which can provide great support to the attorney’s case. In addition, a CDFA® professional can testify in court as an expert witness, something attorneys are not permitted to do on their client's behalf. And as mentioned above, CDFA® professionals can offer a level of objectivity that many advisors who have been previously engaged with the divorcing couple may struggle to do.
When should a CDFA® professional be engaged?
A CDFA® professional usually is not the first advisor to come to mind when a couple has made the decision to divorce. Yet, it is widely known that divorce settlements are often complex, costly, and emotionally charged. It is recommended to engage with a CDFA® professional as soon as possible in the divorce process to help minimize potential conflicts and costs. Having a CDFA® professional who can provide an objective financial assessment of the proposed settlements, before the divorce is finalized, can help increase the divorcing parties’ potential to reach a truly fair agreement. There are other scenarios that could make a CDFA® professional a noteworthy resource to consider as well. What happens if a financial advisor finds themselves in a conflict of interest and severs their advisory agreement with the divorcing couple until after the divorce is finalized? Or, what happens if the idea of sharing an advisor with a soon to be ex-spouse is unappealing or not an option? A CDFA® professional could help make important financial decisions during the transition, giving more time to think about who the next financial advisor will be after the divorce is final.
How does one find a qualified CDFA® professional?
The Institute for Divorce Financial Analysts™, founded in 1993, provides certification for Certified Divorce Financial Analyst® professionals. A qualified CDFA® professional will be in good standing with the IDFA™ and the search functions within the IDFA™ website can be utilized at the user’s convenience and privacy to find a CDFA® professional in a specific location. Another reputable resource would be referrals from divorce attorneys. In fact, it can be advantageous for the attorney to hire the CDFA® professional directly to ensure all financial information can be protected by the attorney-client privilege. If there is a need for financial advisory services post-divorce, it could be beneficial to seek a CDFA® professional who is also a CFP® certificant. A financial practitioner with those combined credentials would be well positioned to consult during the divorce as a CDFA® professional and then engage in holistic financial planning after the divorce is final. This invaluable understanding of where a divorcee came from and where they would like to go pours a great foundation as one looks to rebuild their financial house.
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