Why Should You Hire a CDFA?
Why Should You Hire a CDFA?
By: Amy Mahlen CFP®, CDFA™
When a divorce is on the horizon, typically the knee-jerk reaction is to immediately hire an attorney. Although lawyers provide an extremely critical role in the divorce process by providing legal advice and drafting legal agreements, they may not be adequately equipped to provide the financial support that is needed. Outside of a parenting plan, the majority of a divorce is addressing financial issues. These issues range from how to divide retirement accounts, planning new living arrangements, and discussing who will pay for your son’s cell phone or car insurance.
A Certified Divorce Financial Analyst™ (CDFA) helps support clients, either individually or as a couple, through the divorce process by providing the following:
Organization = Save Money
A CDFA can help prepare your financial information before meeting with an attorney. This can dramatically save billable time and make your meetings more efficient. Getting organized before starting the process also helps you ask better questions and makes your meetings with your attorney significantly more productive. The hourly fees charged by attorneys tend to be higher (possibly double!) than a CDFA’s rate. CDFA’s are also financial professionals who know where to find information on financial documents quickly and thoroughly.
Minimize Emotions, Reduce Conflict
Divorce is extremely emotional. If not kept in check, emotions can quickly become an overwhelming force, increasing conflict and therefore the total cost of your divorce. Additional financial support can help you keep your eyes on your priorities and needs so that you can develop options you can live with moving forward. Being able to process proposals from a financial viewpoint with an unbiased third party can decrease tension surrounding trigger points.
Level the Playing Field
The level of financial knowledge between a couple can be considerably unequal. Maybe one partner handled most of the finances during the marriage. In many cases, it is extremely difficult to trust a spouse during the divorce process. Working with a financial expert who can provide trusted information is extremely helpful, and can help level the playing field between the spouses.
Forward Thinking
A central issue in divorce is determining how to divide property. Most people focus on a division from the viewpoint of today. However, values and situations can change over time. Baby Boomers who are divorcing will also be facing another major life change, retirement, in the very near future. Additionally, a large difference in earning potential between spouses can greatly affect future long-term savings potential for a lower-income-earning spouse or stay-at-home parent. All of these future outcomes should be considered at the time of the divorce.
Tax Considerations
Understanding various tax differences between assets is important, based on each client’s goals and situation. Proceeds from a future home sale, rental property income or gains, different retirement accounts, and pension and social security payments are all taxed differently. The manner in which a separation agreement is developed, written and agreed upon, can significantly affect future tax benefits and qualifications. A CDFA is a trained expert who will review tax considerations in your case to understand the differences now and in the future before you make a decision today.
Most of the financial decisions made in a divorce are extremely difficult to change – if they can be changed at all. It is important to take your time and put energy into making sure you understand and are comfortable with the agreements made. A CDFA can offer valuable support during this time and also help provide for a smoother divorce recovery ahead.