In typical divorce settings, two parties work with their attorneys to divide property, a decision that’s usually centered on assets, current income and expenses. How the division of assets will affect each party over the long term, however, isn’t often part of the discussion.
“There’s no one there to provide long-term financial projections and illustrate the consequences of those actions,” says Amy Weldele, CFP®, CDFA™, Senior Wealth Manager at Budros, Ruhlin & Roe, Inc.
When shared assets are divided, it must be understood that each spouse likely won’t be able to afford the same lifestyle as before the divorce, she says. A Certified Divorce Financial Analyst (CDFA™) can point to potential problems before a divorce, giving each party more information on which to base long-term planning decisions.
“If you’re close to retirement and splitting assets in a divorce, you don’t have much time to make up for a financial mistake,” Weldele says. “It’s very important for older people to think about the effects of a divorce settlement before a legally binding decision is made.”
Smart Business spoke with Weldele about the long-term financial considerations that should be made when getting a divorce, CDFAs™ and how they fit within the collaborative divorce process.
What is the CDFA™ designation?
The CDFA™ designation is acquired by financial professionals through the Institute for Divorce Financial Analysts. Financial professionals who have this designation are considered experts on the financial planning side of divorce.
A professional who has the CDFA™ designation can act as a strategist and prepare long-term financial projections that attorneys would often not prepare. CDFAs™ provide a second layer of financial expertise that adds value to what attorneys bring to divorce settlements.
CDFAs™ also provide litigation support to attorneys if a case goes to trial. These professionals can testify as financial experts and expert witnesses because the designation often carries more weight in a legal setting.
What is collaborative divorce and how are CDFAs™ involved?
In thinking about hiring a divorce attorney, many people are not aware of the collaborative approach to divorce. It’s not for everyone, but it can be beneficial in the right circumstance.
Traditionally, the two people pursuing a divorce each hire individual attorneys and enter into an often protracted legal battle over assets, with the final decision made by the court.
When the lines of communication are somewhat open, the couple may instead seek out attorneys trained in collaborative law. These specially trained attorneys work with a couple outside of court on the premise that they can find a compromise without requiring a judge to issue a decision.
Two attorneys, one for each person in the divorce, and the couple work together along with a mental health professional to come to the terms of the divorce. Often a CDFA™ is brought in to consult with both parties on the division of assets and the financial consequences of those decisions.
How can a CDFA™ help?
Bringing in a CDFA™ as soon as possible to help divide assets and highlight long-term financial goals can save people from realizing, after the fact, that they’ve taken on more than they can afford.
There are major financial planning issues to consider when entering into a divorce, such as Social Security benefits, which have a number of technicalities; estate planning adjustments; and health insurance issues. As the divorcing couple faces these decisions, a CDFA™ may present the financial implications of the decisions today and in the future.
Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.