Divorce is a major life event that presents emotional, legal and financial challenges. In addition to the emotional turmoil, it is essential to tackle the financial aspects of your divorce objectively.
That’s where a divorce financial advisor comes into play. In this article, we take a closer look at the crucial role these professionals play during a divorce, the services they offer and the types of clients who can benefit from their expertise.
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What is a divorce financial advisor?
A financial divorce advisor will help you draw up a financial plan during and after a divorce. They tailor the services of a traditional financial advisor – such as asset management, tax planning and budgeting – to clients filing for divorce.
Some advisors have a professional designation as a Certified Divorce Financial Analyst (CDFA), which is designated by the Institute for Divorce Financial Analysts.
A CDFA designation means these financial advisors can help you navigate issues such as:
- Identify the short- and long-term effects of dividing property.
- Tax consequences.
- Analyzing pension schemes and pensions.
- Determine whether you can afford the marital home.
- Evaluating insurance needs.
A CDFA is not a divorce attorney and therefore cannot provide legal advice. However, they can become part of your divorce team and provide legal support to you and your attorney.
A CDFA can also assist with the legal discovery phase, preparing your financial statement and creating a marital asset balance.
After a divorce, an advisor can help you create a new financial plan. They can help you create a budget as a single person and give you advice on how to protect your credit score.
The cost of a certified divorce financial analyst is about $300 per hour, or an average of $3,000 to $6,000 per case, according to the Center for Divorce Financial Planning.
Role of a divorce financial advisor
The main role of a financial divorce advisor is to provide expert insight into the impact of divorce on your finances and to help you create a post-divorce plan.
Lawyers are legal experts, not financial experts. While some attorneys are well-versed in money matters, a divorce financial planner can crunch the numbers to determine the impact of a particular divorce settlement on your bottom line.
A financial divorce advisor can also:
- Act as an expert witness if the case goes to court, or in mediation or arbitration proceedings.
- Collect financial data.
- Helps you identify your future financial goals.
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Develop a budget.
- Set retirement goals.
- Determine how much risk you are willing to take with your investments.
- Determine the cost of your children’s education.
By conducting a thorough analysis of all accounts, investments and property, a divorce counselor levels the playing field, helping you avoid costly mistakes when splitting assets.
For example, a married couple may decide to split their retirement accounts down the middle, which sounds reasonable enough. But if one person receives assets from a traditional IRA and one person receives assets from a Roth IRA, the person receiving the traditional IRA will face a tax bill when it comes time to withdraw money in retirement, while the person who receives a Roth IRA enjoy tax-free withdrawals.
An attorney may not take this into account during the settlement process, but a divorce financial advisor can analyze such long-term financial implications before finalizing the divorce.
Who needs a financial divorce advisor?
If a couple has significant assets, it may be a good idea to hire a financial divorce advisor. It can also be helpful if one person is less knowledgeable about the household’s finances and assets than the other.
You may also benefit from hiring a financial divorce planner if you need to navigate complex situations such as:
- One or both of you have a business.
- One or both of you own significant real estate or other investments.
- You need help managing the distribution of retirement accounts or pensions.
- One side asks for alimony or child support
For example, if a spouse owns a business, a financial advisor can analyze cash flow, inventory and business valuations to ensure a fair settlement and prevent attempts to hide income.
However, if you and your soon-to-be ex-spouse have few assets and minimal debts and you both agree on how things should be divided, you probably don’t need a financial divorce advisor.
How do you find a financial divorce advisor?
You can start your search for a financial advisor online. Once you have identified potential candidates, you can organize an initial consultation. During this conversation you will have the opportunity to gauge the expertise of the financial advisor and ask questions.
Some possible questions to ask during the initial consultation include:
- Have you handled similar cases to mine?
- What is your preferred method of communication and how often do we communicate?
- What is your approach to working with divorce lawyers?
- Can you walk me through a case where you helped a client achieve a favorable outcome?
- Can you explain your fee structure in detail?
- What financial services do you provide after the divorce?
If you are interested in working with a certified divorce financial analyst, you can use the search function on the website Website of the Institute for Divorce Financial Analysts to find one near you. You can also take a look at the Association of Divorce Financial Plannersan organization for financial professionals specialized in divorces.
Tips for financial planning during divorce
Divorce comes with unique financial challenges. In addition to hiring a financial divorce advisor, there are some other financial matters to consider.
- To create a financial checklist: Creating a comprehensive checklist can help you focus on necessary financial tasks, such as updating legal documents, creating a new budget, and checking credit reports.
- Beneficiary designations: You should review and update beneficiary designations on life insurance policies, retirement accounts, and bank accounts. This ensures that the right people receive the benefit after you die.
- To cancel joint accounts and credit cards: Closing joint bank accounts and credit cards is essential to protect both parties from potential disputes and unauthorized transactions.
- Assess health insurance: If you were covered under your spouse’s plan, you will need to arrange alternative coverage through an employer, a private plan or the federal government. Marketplace for health insurance.
In addition to your attorney and a financial advisor, you may also consider consulting with other professionals during the divorce process, including a certified public accountant or an estate planning attorney.
In short
Assembling a reliable team of professionals is crucial during a divorce. Adding a financial advisor to your team can make it easier to deal with complex financial issues, especially for wealthy couples.
From analyzing the financial implications of different settlement outcomes to helping you create a post-divorce budget, a financial advisor can serve as an important ally during an emotionally draining time.
