Wealth Protection

Divorcing couples turn to CDFA® Professionals

Specialized Approach for Settlements

More and more, financial planning is valued as a means to reach equitable settlements for couples who are divorcing. Enter the niche professional designation: the Certified Divorce Financial Analyst (CDFA®).

Since 1993, the Durham, North Carolina-based Institute for Divorce Financial Analysts’ (IDFA) website notes that it has certified more than 5,000 CDFAs in the United States and Canada.

The IDFA explains that the role of the CDFA lies between that of other professionally designated financial planners – such as a Certified Financial Planner (CFP®) or a Chartered Financial Consultant (ChFC®) – who help people achieve short-term and long-term financial goals, and an accountant who usually focuses on the details of a present-day financial scenario.

Many financial advisors hold multiple registrations and certifications. Along with CFP, ChFC, and CDFA, clients might see other industry designations after the name of a financial services professional. And, there are also those who operate as fiduciaries or brokers.

CHuck“The truth is, while the distinctions between these are clear within the financial services industry, the client generally has no idea what these distinctions refer to or how it impacts them or their investments,” says Charles Johnson, principal at Guardian Planners in DuBois, Pennsylvania. “Also, in order to best serve the clients’ interests, it can be necessary to wear more than one hat, so functionally it becomes murky,” he says.

In essence, the role of a CDFA can be viewed as a hybrid specialty, which combines strengths of financial planners, accountants and lawyers, to provide specific expertise linked to the financial issues of divorce. As such, CDFAs can become an integral part of the divorce team, says the IDFA.

Renée W. Senes, CDFA, with Senes & Chwalek Financial Advisors, based in Concord, Massachusetts, wears several hats, one of which is co-author of the book, Money & Divorce: Costly Mistakes You Don’t Want to Make.
Sense centered1Just some of the potential mistakes she points to include, underestimating the costs of keeping the house; failing to separate joint assets; not considering the taxes on alimony payments; and using retirement assets for current income.

What’s more, the earlier parties can reach out to a CDFA, the more beneficial it can be. But such early contact is not generally the case. Usually, the first, and often only, call is to an attorney.

“Typically, a financial advisor – whether it is a CPA, CFP, or a CDFA professional – is not considered until later in the divorce processor even until after the divorce is final,” according to the IDFA.

CDFA professionals can provide the client and attorney with data analysis that projects the financial effect of a proposed settlement.

Business people683x455And the sooner a CDFA becomes part of a collaborative divorce team, the better because they are trained intensively to handle aspects and details of each case that lawyers usually don’t. These include, according to the IDFA: identifying the short- and long-term effects of dividing property; integrating tax issues; analyzing pension and retirement plan issues; 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, and bringing an innovative and creative approach to settling cases. In some instances, CDFA professionals may even act as expert witnesses in court or in mediation proceedings.

Once part of the divorce team, CDFAs dive into the process of collecting data and analyzing it.

“CDFAs can help manage a client’s expectations of their financial future by presenting different scenarios and talking through the client’s budget and expenses,” says the IDFA.

CDFAs are specially trained to collect financial and expense data, develop budgets, identify future financial goals, determine retirement objectives and assess what type of lifestyle is desired and realistic. And, it helps when clients are financially literate or are willing to learn.

“As a financial planner and a certified divorce financial analyst, I see too many people who have not enough saved and have accumulated significant debt,” says Senes, adding, “All too often they are not aware of what they actually live on – the net income of the household – and how much they spend annually. This leads to credit card debt, living paycheck to paycheck and lack of an emergency fund.”

Excessive debt and financial worry can weigh especially on a marriage. Says the IDFA website: “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.”

Senes explains that it comes down to knowing four basics: What the client owns (assets), what the client owes (liabilities), what’s coming in (income), and what’s going out (expenses).
But there are those who contend that knowledge alone doesn’t cut it.

“I believe knowing is not enough, we MUST apply the knowledge we have acquired,” says Michelle Ogden, CFP, founder and CEO of Ogden Wealth based in Winter Park, Florida. She maintains, however, that the problem is most people have limiting beliefs that restrain them from doing what they know they need to do.

"The psychology behind why we do what we do with our money is fascinating,” Ogden says. “I always say that we manage the emotions around our clients’ money more than the money itself, and it’s true.”

michelle Ogden quoteee1Going through a divorce is certainly a time fraught with emotion. Financial problems are frequently at the root of what ultimately ends in divorce.

“Once a decision to separate or divorce has been reached, all sorts of questions bubble to the surface,” says the IDFA. “These questions are often clouded by wounded emotions and accompanied by mutual accusations, which comes as no surprise.”

Going through a divorce is a time of enormous stress and emotional upheaval. But with proper planning, foresight and selecting the right team of experts, it need not be a time of drastic financial upheaval. In short, a CDFA can serve as key member of the team -- to bring some calm and clarity to the financial ramifications.



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