By Pam Friedman
As published in HerMoney
July 28, 2021
In my years advising clients as a financial planner, I’ve learned that people tend to think of divorce as a protracted, contentious affair where embittered spouses use unsavory tactics to secure money, property and children. The reality is that divorce can be, and often is, an orderly, even amicable, dissolution of marriage. This can be true for those who take a few basic steps to prepare for the process.
As a Certified Divorce Financial Analyst (CDFA), I see the costly and possibly devastating result of clients who fail to assemble critical documents, enlist the help of the right specialists, and protect themselves against abuse. This is when divorce begins to feel less like a controlled ordeal and more like a high-stakes gamble that threatens to erode wealth and destabilize a family.
SQUIRRELING AWAY THE ESSENTIALS
Once it’s clear divorce is on the radar, the first priority should be gathering all the relevant financial documents. Those typically start with tax returns, estate plans, pay stubs, and bank, payroll and investment account statements.
From there, as CDFAs, we can begin the process of compiling a personal balance sheet to analyze the state of a couple’s assets and liabilities. We can also prepare a budget spreadsheet that reflects a client’s ideal outcome, whether that means retaining a marital home or obtaining enough assets to maintain a certain lifestyle. The spreadsheet should be a fluid document, incorporating variables that could alter finances.
This comprehensive view allows a CDFA to diagnose problems and identify overlooked opportunities and options. We use this information as a basis for isolating causes of friction and exploring new boundaries.
I help my clients, most of whom are women, explore ways to retain the marital home, for example, minimizing disruption to children in their care. That might include a refinancing to make large mortgage payments affordable. If affordability is a concern, a CDFA can help a client consider whether renting a home is a better option to ease their transition. In my experience, both parents and children will adjust to a new normal more quickly than they expect.
HIRING A FINANCIAL PLANNER
The next step is to ensure the right advisors are in place. While a divorce attorney is critical for imminently securing the desired division of assets through the courts, it is the financial planner who works with the larger, long-term financial picture in mind.
Specifically, parties benefit from engaging the more specialized CDFA, one who can offer a blend of planning, investment and divorce expertise, particularly where significant assets must be divided. An experienced financial adviser can minimize the risk of financial mistakes that can last well beyond the divorce.
We take a more in-depth look at finances in the context of tax laws, benefits coverage, investment accounts and estate plans in the long –and short–term. We can help avoid potential expenses and even find ways to increase the pool of assets so everyone’s share is maximized. And we work with attorneys and other advisors to ensure our strategy is in sync with all aspects of a client’s life.
Some clients learn pivotal details about the money in their relationship during discussions with a CDFA that can dramatically change their views about the need for a divorce. They can use time spent with a CDFA to better understand their issues, determine options and processes to move forward and even reconcile differences.
After talking through issues, they may discover that their relationship has not run its course, but their tolerance for the other’s financial habits has. We may help them realize that their conflicts can be addressed through financial remedies instead. Couples may learn, for instance, that their differing views on managing risk are actually the cause of their marital strife.
Others may learn a divorce can be revisited after therapy, or that a partition agreement to divided financial assets is more appropriate than divorce to divide assets. In cases where divorce is inevitable, we may help determine that it’s better to delay filing for tax purposes or even to maintain health insurance.
Whether hiring a CDFA or an attorney, it’s critical to secure the right advice early on. Clients are sometimes reluctant to take the plunge because it makes their divorce seem more real. Clients also believe that more professionals means more expense even though the opposite is more likely to be true. Both the financial and legal worlds are more complex than ever before. A financial analyst may take hours to understand a legal issue or an attorney may take hours to understand a financial one, costing clients both time and money. However, committing to the appropriate professional team at the onset can ultimately expedite the process, save on expenses and yield better outcomes.
GUARDING AGAINST ABUSE
Lastly, I advise clients to ensure they’re protected from any form of abuse, whether physical, emotional or financial. As a CDFA, part of my role is to help clients secure meetings with the right contacts, particularly when it comes to abuse. In the case of physical abuse, clients should consult a family law attorney to understand their rights and available safeguards.
Financial abuse usually comes in the form of a lack of information, where a spouse—often a husband who has been the sole breadwinner—may hide assets, withhold passwords, or refuse to share critical documents.
In some cases, this may involve a wife who had little financial independence or even knowledge of the family’s financial picture during the marriage and becomes severely disadvantaged in seeking an equitable settlement during a divorce. For these situations, CDFAs and attorneys can collaborate on further action, which could involve a formal discovery process to obtain accurate records or hiring a forensic accountant
Ultimately, our role as CDFAs is to educate clients about issues that could alter their settlement or impact their future, while navigating the complex web of marital law, financial realities and relationship dynamics. My goal is to broaden the scope of choices for clients—and deter them from becoming discouraged when the math doesn’t seem to add up.