Should you get a financial specialist to help with your divorce? Most people start their divorces looking for a mediator or a lawyer, not a financial planner, so it can be a startling question.
Yet a divorce is likely to be the largest financial transaction in a person’s life. Larger than buying a house. Larger than paying for graduate school. Larger than raising a child. While marriage may have been about love, now that the flame has extinguished, divorce is about security for the future and rebuilding a financially successful life. That is why it is important to make sure that the division of assets and income is fair, meets your needs and those of your children, and allows you to thrive after the divorce.
Divorce can be complicated to navigate, and for that you most likely need a lawyer. They are trained to help you through this complicated legal process. However, divorce contains many intricate details that can have a long-term consequence on your finances and that are beyond the education and horizon of lawyers.
Lawyers Are Important, But...
There is no question that the professional experience and skills of a lawyer are needed in navigating the choppy waters of what is essentially a legal process. There are many intricacies in the way that divorce can get handled across issues, such as child support, asset division, alimony, inheritances and trusts that need the steady hand of a skilled lawyer.
Lawyers bring you to the finish line; that's what you pay them to do. However, people divorcing have other needs to help them move on afterward. They need to make sure that the division of assets and income allows them to pursue their goals and lead fulfilling lives. And because modern life has made professional work so intricate and specialized, you have to make sure that you get the right professional for the right job.
Divorce lawyers try to protect their clients’ financial interests, and some do better than others. Nevertheless, few lawyers are financial experts. It’s not part of the curriculum in law school, and it is not part of the practice of the average divorce lawyer.
Three Questions You Need to Answer
Dealing with the immediate, potential and future financial consequences of a divorce is where a qualified financial analyst can best help. A financial expert can help you succeed financially with your divorce by helping you answer three critical questions:
1. Where are you today financially?
What are your assets and your liabilities? What is the joint marital income, and what are the ongoing expenses?
Surprisingly, many people can’t answer those questions precisely. As long as the bills are paid and the checking account balance is over the minimum, many are too busy dealing with the other issues of life to pay attention.
Diane Pappas, a veteran Certified Divorce Financial Analyst, observes: “A lot of times when I'm working with a couple...they won't know what they have in retirement accounts, what kind of assets they have. Sometimes they don't even know what kind of money they're making. They literally have to go look at their paycheck to know what they're getting paid.”
It’s difficult enough to go through the process of the planning that is required in a divorce without knowing that basic information. If you don't even know where you are today, how are you going to be able to cope with all the financial changes that will occur during the upcoming split? How will you figure out where you are going, and how to get there?
2. Where will you be the day after the divorce?
After answering the first question, it’s important to navigate your negotiations to a settlement that can help you move forward. A quick example is the decision about the marital home. Should you keep it? Should you sell it? Should you sell it LATER after the children graduate? Can you afford it? Similar questions can be asked about most other financial issues. That also applies to liabilities, or the debt owed on credit cards, student loans or the remaining mortgage balance. Then there is the potential challenge of making ends meet on less income.
3. Where will you be five, 10 or even 15 years down the road after the divorce?
That is the REAL measure of a successful divorce negotiation and successful post-divorce financial planning. Ignoring this question is easy because of the immediacy and stress of more pressing issues. It’s easier just to let the process move forward, however slowly, and hope for the best outcome. But without a solid answer to this question, you will not be able to provide informed consent to this largest transaction in your lifetime.
In fact, the inability to answer this question may prevent you from closing an agreement, because you may not have the confidence to move forward.
Deferral or procrastination during a time of emotional stress is human nature, especially when you are not sure about what questions to ask and how to analyze the data. That is where borrowing the expertise of a knowledgeable professional can pay off. Getting the best divorce-related financial advice early in the process will pay dividends down that long road beyond the day that the divorce becomes final.
Common Financial Specialists Used in a Divorce
Bringing a financial expert into the process of divorce can make the difference between making an informed decision that gives you a path forward or having to pick up the pieces later. Financial experts and advisers can play a useful role in divorce financial planning. However, it can be challenging to figure out which financial specialist to pick, as they come with many different stripes and colors. Some of the major categories include:
- Certified Public Accountants (CPAs) often focus on taxes. Because one of the major challenges of a divorce is to figure out the tax consequences, it is important to have that expertise on board. In addition, CPAs will sometimes also work on forensic accounting to help find hidden assets.
- Business valuators get involved when the divorce case includes the ownership of a business. Regardless of the involvement of each spouse, the business is likely to be one of the most valuable assets of the marriage, one that is exceedingly difficult to divide. Using a business valuator will allow the parties to put a number to the business and facilitate the negotiation.
- Certified Financial Planners (CFPs) focus on bringing the client from the present to the future, beyond the effective date of your divorce. In a divorce situation, they do so by helping to optimize a settlement offer to take care of the now, but also to position for the future. Some of the areas of focus can include retirement planning, risk management and investments. CFPs can bridge the gap between the attorneys’ focus on getting you to the divorce finish line and your need for solid post-divorce planning that will lead you to financial independence. It is a skillset that is frequently overlooked or missing during divorce negotiations.
- Certified Value Builders (CVBs) are a less common specialty. They help business owners increase the value of their business. When the business owner and the Certified Value Builder are successful, the business owner is able to shore up the rest of their finances.
- Certified Divorce Financial Analysts (CDFAs) are financial professionals who help couples and their lawyers arrive at a fair divorce settlement. CDFAs straddle the expertise of the tax professional with that of the Certified Financial Planner. They use their knowledge of tax law, short- and long-term financial planning and distribution of assets to help clients reach an optimal settlement. CDFAs often have other qualifications. Actually, CPAs and lawyers sometimes have the CDFA. But most often it is paired with the CFP designation. This combination of CFP and CDFA can help clients make sure that their future is well analyzed.
You most likely could use a financial specialist for your divorce. The stakes are too high. Disentangling and splitting assets require far more expertise than what a lawyer is trained in. Anyone involved in a divorce really should be able to answer the three basic questions of divorce: Where are you financially now? Where will you be the day after the divorce? And where will you be 15 years after the divorce?
Being able to answer these questions, especially the last one, is often beyond the scope of what lawyers do. Yet the answers are critical to making sure that you know what you are getting into and how you are going to be financially successful after the divorce.
There are many kinds of financial experts, running the gamut from tax accountants to business valuators. They may be needed for some aspects of your divorce. But the most valuable financial professionals may be the CFP/CDFA combination. They have the training and orientation to bring you to the next level: financial success after divorce.
Chris Chen CFP® CDFA is the founder of Insight Financial Strategists LLC, a fee-only investment advisory firm in Newton, Mass. He specializes in retirement planning and divorce financial planning for professionals and business owners. Chris is a member of the National Association of Personal Financial Advisors (NAPFA). He is on the Board of Directors of the Massachusetts Council on Family Mediation.
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