Divorce can be a painful and grueling process both emotionally and financially. How it shakes out also has repercussions throughout the rest of your life.
“Because divorce can be complicated, emotionally fraught and have long-lasting consequences, obtaining timely, qualified advice can provide many benefits both in the short and long term,” says Jeff Spivack, a wealth senior financial planner with Citizens Securities.
While traditional financial advisors are prepared to help you create a financial plan, the process of decoupling assets when two becomes one requires a different type of expertise — one obtained by a specialized group of divorce financial advisors.
What is a Divorce Financial Advisor?
A divorce financial advisor has experience and credentials related to navigating the financial aspects of divorce beyond that of your traditional financial advisor, says Samantha Garcia, a certified divorce financial analyst and wealth advisor at Halbert Hargrove. “There are many aspects that go into divorce, and not all advisors are skilled in knowing what questions to ask or what suggestions to offer when clients are going through a divorce.”
Take, for example, the splitting of assets: “It is important to understand the tax ramifications of each asset when the funds are to be used and calculating those costs,” Garcia says. “While things can often look even on paper, one spouse can sometimes end up with more than the other when you factor in certain tax ramifications.”
These advisors are prepared to help you through three distinct areas of divorce: asset division, spousal maintenance and child support, says Renee Hanson, a private wealth advisor at Ameriprise Financial. They also understand the three phases of divorce: emotional, physical and financial.
A divorce financial advisor is specifically trained on how to value assets and the issues that can arise when dividing property in a divorce, says Sarah Keys, senior vice president and financial advisor at Wealth Enhancement Group. Examples of this might include valuing future pension payments, tax implications of dividing stock options or calculating the capital gains from selling the marital home.
You can often recognize a divorce financial advisor by the certified divorce financial analyst (CDFA) designation after his or her name. While not all advisors with divorce expertise will get this designation, a CDFA mark is a clear sign that an advisor has the expertise necessary to provide divorce financial planning guidance.
“CDFAs are trained specifically in the financial aspects of divorce and are required to have several years of relevant experience and pass an exam designed and regulated by the Institute for Divorce Financial Analysts,” says Kimberlee Davis, a certified divorce financial analyst and partner and managing director of The Bahnsen Group. “CDFAs use their knowledge of tax law, asset distribution, financial planning and retirement planning to assist couples and their attorneys in crafting an equitable distribution of marital assets in a decoupling.”
What Does a Divorce Financial Advisor Do?
“A divorce financial advisor can help you navigate the financial aspects and repercussions around a divorce,” Garcia says. “While attorneys try to get you what you are asking for and mediators try to help a couple come to an agreement over the assets or custody schedule, a divorce financial advisor can help you understand the financial ramifications of your choices and work to get you a fair settlement.”
This process usually begins by establishing your goals and priorities in any settlements, says Susan Miller, a certified divorce financial analyst, senior wealth advisor and managing director of dispute resolution at The Colony Group. Your divorce financial advisor will then help you collect and organize financial information and become aware of the options available to you financially.
CDFAs provide advice on many financial areas of divorce, Davis says, such as valuing assets and debt, dividing retirement and pension accounts, alimony, the tax implications of property division and establishing a realistic budget post-divorce.
“CDFAs also are adept at uncovering assets that a client’s future ex-spouse may be hiding,” she adds. “This often is the case in situations in which one person has a business and isn’t transparent about the profitability of the business.”
An advisor can prepare projections that illustrate how you and your spouse will fare over the long term using specialized software to help determine if the settlement is equitable for both parties, Miller says.
A divorce financial advisor will also help ensure your post-divorce budget will provide you with financial stability, Spivack says. “Post-divorce expenses are often underestimated; creating a realistic budget that incorporates a reasonable inflation rate is an important step.”
Be aware that a divorce financial advisor’s role is not to provide legal or tax advice, Spivack notes. Rather, the advisor is there to help coordinate the guidance you receive and present questions to the other experts on your financial team, such as your attorney, accountant and mediator.
“In many instances, the financial advisor is the liaison, working to coordinate instructions from each (expert) for the client’s benefit,” he says.
When Do You Need a Divorce Financial Advisor?
“While not everyone needs a CDFA, they need the knowledge of the divorce process and an understanding of their financial options to gauge the impact to their post-divorce life,” Hanson says. “Those with larger or more complicated assets may find high value in a CDFA to assist in scenario projections during negotiations.”
Similarly, if you’re going through a high-conflict divorce, you may benefit from a CDFA who can help you focus on making important financial decisions, she says. “The role of the divorce financial advisor in that case is to help the less knowledgeable spouse understand various financial aspects of the family such as the amount and types of assets owned, the types of income that the family earns, as well as the family expense structure,” Hanson says.
When emotions are running high, it can help to have a divorce financial advisor on your team to help you navigate the bumpy road ahead. “Understanding what is separate property, what is marital property and the potential legal, tax and long-term ramifications of a proposed division is all but impossible,” Keys says. “Add the emotional stress that accompanies even the most amicable divorces, and most people will find peace of mind in knowing they have had an expert help them through the process.”
Another circumstance where a divorce financial advisor may be necessary is if one spouse has more knowledge about the family finances, creating an imbalance in the ability to negotiate, Miller says. If you or your spouse have complicated compensation structures or significant investment in private equity or other hard-to-value assets, she says you should probably work with a divorce financial advisor.
Meanwhile, if you and your future ex-spouse both understand the assets and family income structure and can come to a resolution about how to divide them, you may not need a divorce financial advisor, Miller says.
How to Find a Divorce Financial Advisor
One of the best places to find a divorce financial advisor is through the Institute for Divorce Financial Analysts, which provides the CDFA designation. The institute’s website includes a search engine where you can find a CDFA in your area.
Another good resource is the Association of Divorce Financial Planners, or ADFP, a membership organization for financial professionals specializing in divorce, Garcia says.
“Many states also have professional organizations that include divorce financial specialists such as state bar associations and family mediation groups,” Miller says.
You can also ask friends, family members, colleagues or other financial professionals you work with for recommendations of a good divorce financial advisor.
What to Look For in a Divorce Financial Advisor
When considering a divorce financial advisor, Miller says to look for someone who has exceptional listening skills and can create options that address disparate goals and priorities.
Don’t be afraid to ask questions of the advisor, such as:
— What experience does the advisor have in divorce financial planning?
— Does she have any specialties within divorce financial planning?
— What is their average client profile?
Most important of all is that you feel you can trust the advisor both financially and emotionally. “The divorce process is frequently very painful for one or both parties, and emotions can run high during interactions with each other, as well as with advisors,” Miller says. “The key thing to remember is: Don’t take it personally; it’s not about you.”
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