While it may seem counter-intuitive, the more common divorce becomes, the more complicated it gets. One might expect that because about half of today’s first marriages end in divorce (and around 60 percent of second marriages) the law, the process, even the outcome would become standardized, predictable even. Yet nothing could be farther from the truth.
Finances quickly emerge as the most complicated issue facing a divorcing couple, and today’s finances can be extremely complicated. Years ago, ordinary people did not own mutual funds and stock options, create blended families, or accumulate mountains of credit card and mortgage debt. Dad went to work and Mom stayed home to raise the children. Life was simple, families were simple, and divorce, although rare, was often very simple.
As a result of these financial complexities, individuals and attorneys are asking financial professionals to play an active role in assisting them with sorting through the financial details related to divorce. However, although financial planners and accountants certainly understand investments and taxes, they have little or no professional training specifically related to the financial issues of divorce. When a divorcing client asks them for assistance, many financial advisors are unable to provide critical information or offer insightful advice. Too often, the client is unaware that their financial advisors do not have the required expertise; creating unintended, even adverse results. The long-term impact of making uninformed financial decisions can be devastating to the client, their family, and their future.
Attorneys are trained to research the facts, apply the law, and navigate their clients through the legal system. Accountants calculate tax liabilities, and investment advisors build and manage your portfolio. Today, it is common for attorneys, mediators, and even judges to look to experts that are knowledgeable about the financial issues around divorce to inform this process. A Certified Divorce Financial Analyst is just that professional. Commonly referred to as a CDFA, this person is typically a financial services professional with additional training in the issues specifically related to divorce. A CDFA can assess your current assets, liabilities, and expenses. They are able to assist you with creating a household budget, proposals for division of assets and liabilities and assessing future, post-divorce needs. Without the informed input of an educated professional, you risk making serious financial mistakes that can create irreparable damage to your long-term financial condition.
Although under certain circumstances, a Divorce/Separation Agreement may be modified after the divorce is final, this modification process is expensive, time consuming and almost certainly contentious – and there is no guarantee that you will get what you are asking for! This is your divorce – and it will impact your future. Do your homework and hire qualified financial professionals who are experts in the area of divorce financial planning, and get it right the first time.
A CDFA can help you avoid the following common mistakes:
1. Negotiating to keep the “marital home” when you cannot afford it
2. Understanding the complications of a QDRO to divide retirement assets
3. Realizing the importance of making the spouse who receives spousal and child support payments the owner of a life insurance contract
4. Considering your Social Security benefits
5. Understanding the implications of Modifiable vs. Non-Modifiable Separation Agreements and Alimony
6. Factoring the tax implications of alimony vs. child support payments
For these and many other reasons, any person considering (or facing) divorce would do well to consult a CDFA. As you have seen from these few examples, some of these pitfalls are very technical, and the consequences of making an ill-advised choice in any one of them can last a lifetime. Divorce is always difficult, but it needn’t necessitate a lifetime of regret. Get professional advice from the start, and make your best effort at a new beginning!
Gabrielle Clemens is a lawyer, a certified financial planner, and holds a master's in taxation. She is a Vice President of Investments at UBS Financial Services in Boston and works regularly with divorcing individuals and their attorneys, mediators and collaborative teams to provide clarity on the critical financial issues that arises before, during and after divorce. More information can be found at http://www.businessofdivorce.com.