The role of the Certified Divorce Financial Analyst (CDFA®) professional is to assist the client and his/her lawyer to understand how the financial decisions he/she makes today will impact the client’s financial future.
After his divorce, David went to a financial advisor to determine how to best position his assets. Together, David and his planner decided to do a total financial plan for him. During the planning session, it became apparent that during his marriage his wife had done all of the investing. She chose all the investments, made all the decisions, and invested all the money.
At the time of their divorce she said, “Let’s just split everything 50/50. You take this half of the assets and I will take that half. Is that OK?” David answered, “Well, I guess that sounds pretty fair. That’s OK with me.”
Unfortunately, there was something he neither knew nor understood; neither did his lawyer, and neither did the judge. They didn’t realize that David would have to pay taxes on his half of the assets when he tried to access them. His ex-wife, on the other hand, could access her half of the assets tax-free. His 50/50 split cost him an additional $18,000 in taxes. Had David met with a CDFA® before the divorce was finalized, he would have been in a better position to ask for a more equitable settlement.
This parable has an unfortunate ending, but pre-divorce financial counseling can help people going through a divorce arrive at a settlement that is fully understood by all involved.
Who do people turn to for such assistance? When people think about getting a divorce, the first professional that comes to mind is an attorney. Typically a financial advisor – whether it is a CPA, CFP®, or a CDFA® – is not considered until later in the divorce process – or even until after the divorce is final.
Financial problems can tear a marriage apart, and are often the primary factor that leads to divorce. Once a decision to separate or divorce has been reached, all sorts of questions bubble to the surface. These questions are often clouded by wounded emotions and accompanied by mutual accusations, which comes as no surprise. If a couple cannot solve their financial difficulties while the marriage was underway, it is unlikely that they will be able to agree on pressing financial issues when it has fallen apart.
Many divorcing couples have questions such as:
• Where will the children live?
• Who will pay for their education and medical treatment?
• How do we value our property?
• Who gets what property?
• What tax issues must we be concerned with?
• How do we divide retirement funds and pensions?
• How will the lower-earning spouse survive financially?
• What additional financial support does that person need?
• Who gets the house?
• What happens if a paying ex-spouse dies?
These are the questions that divorce lawyers face with each divorce case. Many lawyers struggle with the intricate financial details that concern tax issues, CRA rulings, capital gains, dividing pensions, and so on. Lawyers attend law school to become experts in the law, not to become financial experts. Additionally, even if lawyers happen to have accumulated a degree of financial expertise, they are not allowed to testify on behalf of their clients in court. This is why more and more lawyers 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.
Fortunately, with CDFA professionals, help is on the way.