By Josh J. Robbins, CFP®, AIF®, Associate Wealth Advisor at Halbert Hargrove
Divorce is tough, and that is ok. Regardless of the length of the marriage, the complexity of the marital estate, or the age of the children, the process of getting divorced is taxing in all regards. It can often be one of the most difficult processes you can go through in your adult life… so what do you do? You get help. Everyone knows that most divorce processes involve attorneys. They are your personal expert on all things divorce law. They help walk you through the process and become your resource for any legal questions you might have. Since half of the divorce process is dividing up marital assets, why wouldn’t you consider having an expert in that field as well? A Certified Divorce Financial Analyst (CDFA) has the skills and knowledge to provide you with the technicalities and tax implications on how assets are split, along with creating a financial plan for you, post-divorce. My goal of writing this article is to better educate you on why a CDFA might be a good option for you.
Working with a CDFA (Certified Divorce Financial Analyst) completely depends on your personal circumstances. Although some divorces can be relatively straightforward, involving little asset division and amicable discussions, others may be more challenging. A very long-term marriage will almost always have a much more complex marital estate than a short-lived marriage.
Even so, you might be asking yourself, “I already hired an attorney. Why would I need a divorce financial advisor?” Just as an attorney brings legal experience to the table, a CDFA professional provides value through their financial expertise. Asset valuation is one of the key initial areas where a divorce financial advisor can shine. It may seem to be a simple matter of listing all your jointly held assets – but assigning the right value to each asset is a different story.
Here are a few additional areas where a divorce financial advisor may be able to add some clarity to the divorce process:
One of the most time-consuming and complex steps in the divorce process is building out a comprehensive financial statement or “financial affidavit.” This document outlines all your current assets, liabilities, income, and expenses. Building it typically involves analyzing financial assets and liabilities like tax returns, personal and business financial statements, social security statements, home evaluations, life insurance policies, stock options, and much more. The goal is to achieve the best possible divorce settlement for your post-divorce circumstances.
Acting as your divorce financial planner, a CDFA can be a great resource in providing guidance during this process. Once the financial affidavit has been created and you start to propose asset division, a comprehensive financial plan can educate you on the present and future impact of what you’ve proposed.
Depending on your situation, this plan will treat issues like the tax implications of alimony, the sale or buyout of a primary residence, child support, and your general monthly expenses post-divorce. A personal financial plan can also help educate you on alternative settlement options depending on your current financial needs.
With the help of a divorce financial planner, the financial decisions you make will not be only focused on the short term – but look ahead to your retirement needs as well.(1) The combination of your financial affidavit and a comprehensive financial plan can outline how the proposed division of assets will affect you in the future.
One common pitfall is comparing cash or liquid assets to an asset that could potentially generate a tax liability. For example, a savings account of $10,000 in cash should be weighted differently than an investment account of equal value. Selling assets in the investment account may cause a taxable event if the funds are needed. Assets in a retirement account need to be assessed differently as well due to the penalties for drawing on the account before you reach the age of 59 1/2.
Having a tax perspective can give both parties a short- and long-term snapshot of their financial futures. Here’s a common pitfall that can occur when dividing assets: One divorcee may opt to take more of the retirement assets, especially if their income can still sustain their quality of living post-divorce. This may put the other party at a long-term disadvantage, even while they’re getting more of the immediate liquid assets such as the checking and savings accounts. Navigating these types of scenarios is where having a divorce financial planner on your side can add tremendous value.
A key to successful divorce mediation starts with understanding your current financial condition. What are your current expenses and needs? How will these change post-divorce? Do you have complex assets that are hard to assign a value to? What about intricate retirement plans? Is spousal support going to be needed?
Whether you’re just starting the divorce process or several months in, consulting a CDFA professional may add the financial clarity you need to make informed decisions. An advantage of working with a divorce financial analyst through Halbert Hargrove is that all our registered CDFA professionals are also Certified Financial Planners™. We would love to continue supporting your financial journey long past the divorce itself. Please reach out to us with any questions!
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.