Advice for Savvy Retirement Planning

What Is a Certified Divorce Financial Analyst?

CC-Dollar DrainOne of the most difficult aspects of divorce can be the financial trauma inflicted on both parties. Not only can the direct costs of divorce be significant (such as attorney fees, transitory costs, etc.), but the lifelong financial outcome and unanticipated financial consequences of divorce can be catastrophic.

There is no getting around the fact that a household income (be it one or both spouses working) that was supporting one household that now must support two, will often result in a lower standard of living for one or both parties. But there can also be a piece missing from the “typical” divorce process that can magnify negative financial outcomes. More often than not, parties to divorce do not seek financial counsel, either early enough, or at all.

What is a Certified Divorce Financial Analyst®?

A CDFA™ is a financial professional who has the requisite test results and experience level to be certified to help people navigate the specific money issues that come up during a divorce. A CDFA™ is someone who comes from a financial planning, accounting or legal background and goes through an intensive training program to become skilled in analyzing and providing expertise related to the financial issues of divorce.

What Does a CDFA™ Do?

The role of the CDFA™ is to help both client and lawyer understand how the financial decisions made today will impact the client’s financial future, based on certain assumptions.
The CDFA:

  • Becomes part of the divorce team, providing litigation support for the lawyer and client, or becomes a member of a Collaborative Law team.
  • Identifying the short-term and long-term effects of dividing property.
  • 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.
  • Bringing an innovative and creative approach to settling cases.
  • Provides the client and lawyer with data that shows the financial effect of any given divorce settlement.
  • Appears as an expert witness if the case should go to court, or in mediation or arbitration proceedings.
  • Is familiar with tax issues that apply to divorce.
  • Has background knowledge of the legal issues in divorce.
  • Is trained to interview clients.
  • Collect financial and expense data.
  • Help client’s identify their future financial goals.
  • Develop a budget.
  • Set retirement objectives.
  • Determine how much risk they are willing to take with their investments.
  • Identify what kind of life style they want.
  • Determine the costs of their children’s education.

Why Do I Need a CDFA™?

Just like a CDFA™ would not try to counsel someone on the legal or emotional aspects of divorce, many other professionals (ie. divorce attorney, therapist, stock broker, etc.) are not trained to advise on the financial aspects of divorce. If you and your spouse have significant financial assets, the financial ramifications can be substantial. It is best to enlist the help of a financial professional specifically trained to guide you through the process. It is a small price to pay when the implications of a major financial mistake can be significant.

How Do I Find a CDFA™?

The easiest ways to find a qualified CDFA™ are to either ask your divorce attorney for a recommendation, or to visit the Institute for Divorce Financial Analysts (InstituteDFA.com).

Robert Henderson is the President of Lansdowne Wealth Management, an independent, fee-only advisory firm in Mystic, CT. His firm specializes in financial planning and investment management for retirement, with a special focus on the particular needs of women that are divorced or widowed. He is an Accredited Asset Management Specialist and a Certified Divorce Financial Analyst®. Mr. Henderson can be reached at 860-245-5078 or bhenderson@lwmwealth.com. You can also view his personal finance blog,The Retirement Workshop at http://lwmwealth.com/blog and the firm’s website at http://www.lwmwealth.com.

Preparation of QDRO’s in Connecticut

In addition to their divorce financial planning work, Lansdowne Wealth Management also partners with Dr. Robert Hetsler, a national expert on the preparation of divorce QDRO’s (Qualified Domestic Relations Orders). As a team, they provide the most accurate QDRO’s in CT, with one of the fastest turnarounds in the industry. For more information on the preparation of QDRO’s in CT, please see our website, www.QDRO-CT.com.

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6 Major Financial Mistakes During Divorce

After decisions about custody of children, the division of marital assets can be the most difficult aspect of divorce. Emotions can play a large role in how parties chose to split assets. This article outlines six of the biggest financial mistakes made during divorce. Hiring a specialized Divorce Financial Planner in Connecticut can prove invaluable, either as a neutral party to the divorce process, or as an advisor to one party.

Underestimating household expenses

In most divorce cases, the parties will be required to submit financial affidavits detailing household expenses. Too often people overlook certain expenses, or misjudge their full cost. At the same time, it’s important to be realistic and acknowledge that your lifestyle may not be the same post-divorce, when the same incomes are now supporting two households.

Divorce Not securing spousal/child support with insurance or other means

Spouses often assume that once a judgment or agreement has been made for spousal or child support, that those payments are guaranteed. Assuming that the higher-earning spouse is going to pay what was agreed to, there are situations where payments may slow or cease. The three primary examples are due to death, disability, or unemployment. This is why securing life and disability insurance on your ex-spouse (prior to the divorce being final!) is important. And in some cases, if you are able to substitute a lump-sum award in lieu of annual support payments, this can alleviate those burdens.

Disregarding tax consequences

Remember, alimony (spousal support) payments are generally subject to ordinary income taxes (generally child support payments are not considered income). Don’t get caught at tax time with a big tax bill when you find out you owe taxes. Concerning the division of assets, remember that in many cases, while separating a retirement account for divorce purposes is considered a non-taxable event, making withdrawals from them to pay for living expenses will be taxable as ordinary income. While there are some exceptions, generally you need to be aware of the consequences. At the same time, if you DO requires use of some retirement assets, there are ways to avoid tax penalties on retirement fund withdrawals, pursuant to a divorce.

Likewise, there may be tax consequences associated with selling investments in a taxable brokerage account, and potential tax issues with the sale of a home. This is why we remind people that not all marital assets are created equal!

Emotional attachment to assets

Frequently we find that the parents that will be the primary caregiver for the children of a divorce have an emotional attachment to the family home. While this is completely understandable, it may not be financially practical. With two households to maintain, there may be limited resources available to cover the mortgage, taxes, insurance, repairs, and maintenance. Financially, it can often make more sense to sell the primary residence and find two dwellings that make more financial sense. And don’t forget, while the equity in a home may be considered an “asset” subject to separation, it can be incredibly costly.

Not securing affordable health insurance prior to divorce

This can be an incredibly costly maneuver if one spouse is no longer covered by health insurance. While laws will generally allow 36 months of COBRA insurance continuation in the case of a divorce, the cost of insurance can be far higher, and once that runs out, it may be extremely difficult to secure new coverage, especially for an older person that might have pre-existing conditions. It’s important to research coverage prior to finalizing a divorce and ensure adequate coverage.

Using your lawyer as a financial planner

Most divorce lawyers are very intelligent and talented individuals. However, their expertise generally extends to the law. While some law firms or individual lawyers have an expertise in financial planning, most do not. If there are significant financial components to your divorce, it’s important to consult a financial professional with expertise in divorce situations.

In addition, because of their fiduciary responsibility to the client, many attorneys do not want to provide more financial advice than they are qualified to deliver.

This is not an exhaustive list of financial mistakes in divorce. It is many of the more frequently seen issues we come across. Financial decisions made during a divorce often have irreversible consequences, so make sure you are adequately prepared with the right team of legal and financial experts. A Certified Divorce Financial Analyst® can help guide you through the financial process of a divorce.

Robert Henderson is the President of Lansdowne Wealth Management, an independent, fee-only advisory firm in Mystic, CT. His firm specializes in financial planning and investment management for retirement, with a special focus on the particular needs of women that are divorced or widowed. He is a Certified Divorce Financial Analyst® and an Accredited Asset Management Specialist. Mr. Henderson can be reached at 860-245-5078 or bhenderson@lwmwealth.com. You can also view his personal finance blog, The Retirement Workshop at http://lwmwealth.com/blog and the firm’s website at http://www.lwmwealth.com.