Among the many reasons cited for divorce—infidelity, lack of commitment, conflict, substance abuse, and violence—one of the top five is financial problems. In one study, approximately 36.7 percent indicated financial issues were “not the most pertinent reason for their divorce, but instead contributed to increased stress and tension within the relationship.” Business Insider reports opposing attitudes toward finances, mismatched priorities, credit card debt, financial infidelity and budget overextension are common money-related reasons for divorce. If finances were a contentious subject during the relationship, it shouldn’t be a surprise when they create friction during a divorce.
As you begin the process, additional disputes will inevitably arise. You’ll need to decide how to divide property and debts, sort tax issues, and discuss retirement plans. How will you equitably distribute these assets so neither you nor your ex-partner struggle in the following years? Bloomberg reports Susan Brown, Bowling Green State University sociology professor and co-director of the National Center for Family & Marriage Research, found wealth drops by 50 percent if you get divorced after 50. For women 50 or older, the standard of living drops to 45 percent, while men see a 21 percent decrease. Younger divorced women and men experience less depreciation.
Engaging a Certified Divorce Financial Analyst (CDFA) can mitigate the risk of an unfair financial split. A CDFA specializes in short- and long-term financial planning for couples undergoing a divorce. The goal of a CDFA is to achieve an equitable divorce settlement and division of assets that will leave both parties financially stable. Unfortunately, a 50/50 division of assets isn’t always the most fair, as one party may incur additional taxes on their half. The national Institute for Divorce Financial Analysts, dedicated to “the certification, education, and promotion of the use of financial professionals in the divorce arena,” outlines an example of this here.
Learn more about the Institute for Divorce Financial Analysts in our resource “Build Your Divorce Dream Team: Key Organizations to Know.”
Certified Divorce Financial Analysts must meet a variety of criteria to receive their certification, so you can be assured they have the credentials to get you the settlement you deserve. Prior to taking the exam given by the Institute for Divorce Financial Analysts, candidates must have a bachelor’s degree and three years of experience in either financial planning, family law practice, tax codes, investment advisory, real estate lending, or financial therapy. If they don’t have a bachelor’s degree, they must have five years experience in one of the aforementioned areas. Once the candidate has met eligibility requirements, they’ll need to pass the certification exam, which covers their responsibilities, divorce law, property and taxation, retirement plans, spousal and child support, financial analysis and planning, and specialty areas.
Typically, divorces that include significant property, retirement accounts, children, a joint business, or large sums of money should invest in a CDFA, advises Investopedia. The intricacies of the finances may be too complex for the lawyer to handle. The CDFA provides advice to both you and your lawyer, but can’t offer legal advice unless they have a license. They’re part of your divorce team and cannot be used in lieu of a lawyer.
A CDFA should be able to answer questions such as:
- How is our property valued and how do we split it?
- What tax issues will we contend with?
- How do we divide retirement funds and pensions?
- Who will pay for the children’s education, medical treatment, and other needs?
- Who will pay child support and how much is adequate?
- Who will pay alimony, how much, and for how long?
- How will the lower-earning spouse survive financially?
This financial specialist’s role is to identify both the short- and long-term impacts of dividing your assets and whether there will be any associated tax issues. They analyze pension and retirement plans, evaluate insurance needs, and determine if clients can afford to keep their home, providing alternatives if not. These professionals often make assumptions about income, expenses, inflation rates, interest rates, and return on investments based on current assets to plan for the future. A CDFA may also appear as an expert witness in court or mediation. To perform such duties, he or she will collect financial data, identify your and your ex-spouse’s financial goals, develop budgets, determine investment risks, and establish the children’s educational costs.
These services can set you up for success in the future. You’ll be able to negotiate a fair settlement, and understand the differences between the proposed settlement and an equitable one. The CDFA can help you maximize your assets and preserve separate property, while minimizing legal fees and tax concerns.