Divorce can be incredibly overwhelming from many aspects and impacts our emotional, physical and financial well-being. There’s a lot of work that needs to be done when going through a divorce and many decisions that must be made. It can be challenging to know where to start, and there are numerous ways to get divorced these days. Some involve an amicable approach, using a mediator or an entire team to collaborate, while others are highly contentious, with lawyers acting as the go-betweens and sometimes involving courts. The process is often a time-consuming, emotional roller coaster. We’re here to try and help you simplify this process and let you know you’re not alone.
If you’ve ever heard the saying, “It takes a village,” it’s very true when it comes to divorce. Have a team in place to help you navigate a divorce is essential, regardless of the type of divorce you may find yourself in. Since divorce is a legal process it requires professional advice. You want a lawyer that you feel comfortable and confident in that will help advocate for your best interests. While your lawyer knows and understands the law, there are financial consequences of divorce that can be quite complex, depending on your situation. A Certified Financial Planner (CFP®) or Certified Public Accountant (CPA) can help you understand the short and long-term financial impacts of any proposed divorce settlements. They help provide information surrounding various financial issues from health care coverage, dividing pension plans, tax consequences, the family home, any businesses and much more. They can help your legal team make financial sense of any proposals and act as expert witnesses in trials and arbitrations. Having a financial professional in place can help provide you with peace of mind when it comes to your financial future. Lastly, divorce is emotionally taxing and can be scary. There are divorce coaches that provide advice outside the legal arena as well as counselling services throughout and after the divorce. They are there to be your champions throughout the entire process, and show you there is life and love during and after divorce. While hiring three different people might sound expensive, it’s generally considered more cost effective in the long run. By hiring an entire team, each professional can focus their time with you on their area of expertise, making their work more cost effective.
Putting a team in place won’t happen overnight as you’ll want to take some time hiring the right people. In the meantime, there are documents you’ll want to start compiling as your legal and financial team will need a lot of information to help you determine the best path forward. We’ve created a checklist you can download here of the documents you’ll need to gather (regardless of where you are in the process). It’s a lengthy list and the items required can seem overwhelming. Start with the easy stuff, and once you have a CFP® or CPA, they’ll often meet with you, to help ensure you get everything necessary. Having a team and tools to help you get started and organized are what you’ll need, to help get through such a significant life event.
Anyone familiar with divorce knows how emotionally challenging it can be. On top of the emotional challenges, all the financial factors that need to be considered and evaluated add a lot of stress. After witnessing a few close friends go through this process, I decided to become a Certified Divorce Financial Analyst (CDFA®). With this credential and my financial planning background, I can better help alleviate some of the financial stress and uncertainty that comes with divorce.
So, what exactly is a CDFA®? It’s a professional who is trained to provide financial information and assistance to people going through a divorce by helping evaluate the following:
Short- and long-term financial impact of various settlement options for dividing marital assets
Settlement options for dividing pensions and qualified retirement plans
Settlement options for any jointly owned businesses
Child and spousal support payments
The CDFA® provides their client’s lawyer with data to help strengthen their case or works as the financial expert on a team in a collaborative divorce. My role as a CDFA® is to help people avoid common financial pitfalls of divorce, by offering valuable insight into the pros and cons of different settlement options.
My clients often ask why they’d need a CDFA® if they already have an attorney. It’s always beneficial to have an attorney involved in the divorce process to give legal guidance and advice, but why would you need a CDFA®? Attorneys specialize in law, not finance. While attorneys know what needs to be done from the legal perspective, they don’t necessarily have the background and training to understand tax implications and how to model the differences in the short- and long-term outcomes of various settlement options. Other experts, like CPAs, can provide some financial perspective, but CPAs tend to focus on short-term tax implications, neglecting longer-term outcomes. A CDFA® will make sure your interests are covered for both the short- and long-term.
How do you know if you need a CDFA®? There’s not a cut and dry answer to this question, but we recommend considering a CDFA® when the marital estate is over $2 million or when there are complex financial matters like a joint business or multiple properties. If you or someone you know could benefit from working with a CDFA®, please don’t hesitate to contact us.
Written by: Hannah Ahmed, CFP®, CDFA®
Get the latest blog posts delivered directly to your inbox