What Financial Specialists Do You Need?

By Chris Chen CFP | Divorce Planning

Jan 20

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 that can be a startling question.

Yet 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 been extinguished, divorce is about securing the future and rebuilding a financially successful life. That is why it is crucial to make sure that the division of assets and income is fair, meets your needs and that 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 long-term consequences on your finances and are beyond the education and horizon of lawyers.

Lawyers are important, but…

There is no question that you need a lawyer’s professional experience and skills in navigating the choppy waters of what is essentially a legal process. There are many intricacies in the way that divorce gets 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 ensure that you get the right professional for the right job.

Divorce lawyers do try to protect their client’s interests. Nevertheless, few lawyers are financial experts. It’s not part of the curriculum in law school, and financial planning 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 your divorce by helping you answer three critical questions:

The first question is, 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 in Gloucester, MA, 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. So they literally have to go look at their paycheck to know what they’re getting paid.”

It’s difficult enough to go through the planning process that is required in a divorce without knowing that basic information. If you don’t even know where you are today, how will you be able to cope with all the financial changes that will occur during the upcoming split? If you don’t know where you are today, how will you figure out where you are going and how to get there?

The second question is, where will you be the day after the divorce? After answering the first question, it’s essential to navigate your negotiations to a settlement that can help you move forward. A quick example is a 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. Of course, 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.

The third question is, where will you be 5, 10, or even 15 years down the road after the divorce? That is the 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 immediate 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 for 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 emotional stress is human nature, especially when you are unsure 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 divorce process 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 advisors can play a useful role in divorce financial planning. However, it can be challenging to determine 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 significant challenges of a divorce is to figure out the tax consequences, it is essential 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 and position for the future. Some of the focus areas 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 skill set 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, often a top priority for business owners fresh out of a divorce. When the business owner and the Certified Value Builder are successful, the business owner can 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 ensure that their future is well analyzed.

Let’s Recap

You most likely could use a financial specialist for your divorce. The stakes are too high not to. Disentangling and splitting assets requires 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 to and how you will be financially successful after the divorce.

There are many kinds of financial experts running the gamut from tax accountants to business valuators. Many may be needed for some aspects of your divorce. But the most valuable divorce 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.

 

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About the Author

Chris Chen CFP CDFA is the CEO and a Wealth Strategist with Insight Financial Strategists LLC in the Boston area. He specializes in retirement planning and divorce financial planning