Q) Can you describe the process of obtaining a CDFA®? What can a CDFA® advise you on?
A) The Certified Divorce Financial Analyst, or CDFA®, designation is acquired by someone that has specific knowledge and experience working on the financial impacts of a divorce. Becoming a CDFA® requires passing four different exams covering the fundamentals, financial issues and tax issues of divorce. The certification also requires case study reviews, and how one can apply their knowledge to realistic scenarios.
A CDFA® professional is there to advise those who are possibly preparing for a divorce and needs to comprehensively understand how that may affect their financial future. There are too many cases where people split assets in a manner they think is beneficial to them without performing the proper due-diligence. Often a settlement may fail to address their long-term needs.
Q) While going through a divorce, what are some of the benefits of working with a CDFA® in addition to a divorce lawyer?
A) A divorce lawyer has the legal knowledge and experience required to handle a divorce case. They are extremely valuable to have as a member of your team but may not be as equipped to handle some of the more in-depth financial questions and scenarios.
A CDFA® possesses the financial knowledge and expertise to carefully review the details of each divorce case. They are responsible for understanding the family’s assets, determining the client’s financial needs and projecting the future circumstances of each potential settlement. A client’s settlement may be proposed without being thoroughly evaluated to determine how they will be positioned financially in the long term. That’s where a CDFA® can show their value.
Q) What are some of the most important financial issues that need addressed during the divorce process?
A) When going through a divorce, it’s important to get a solid summary of your assets. Often in marriages you’ll find that one spouse handles the finances, and the other spouse may not have a thorough understanding of the assets and liabilities that are shared. To properly evaluate and reach a potential settlement, we need to have a concrete understanding of a couple’s financial situation.
Another item that is often overlooked is the impact taxes can have on different types of accounts. Withdrawals on retirement accounts are taxed differently than a personal account, and sometimes they can incur a penalty. Some securities held within a personal account may have larger taxable gains than others. Without a detailed review of your tax situation, there could be a significant negative impact on your portion of the settlement.
One last item of significant importance is how critical it is to have your potential settlement projected into the future. With a new income level, reduced assets, and additional expenses, you need to know if you can financially survive the changes. Too often we see proposals that look like they could be beneficial, but ultimately one spouse ends up struggling financially while the other thrives. With an in-depth analysis, this can be avoided.
Q) What kind of schedules/projections does Fragasso prepare during a divorce?
A) Fragasso projects an individual’s assets into the future so that the ramifications of a proposed settlement are clearly understood. Our projections take into account growth, inflation, taxes and specific details unique to each case into consideration. In order to fully understand what our client needs, it’s so important to be as detailed as possible when running an analysis. We can determine if a settlement proposal would be enough for a client’s survival; and if it’s not, we can identify possible solutions.
Q) Is it advisable for both spouses to use the same investment advisor when going through a divorce?
A) There are scenarios when using the same CDFA® is beneficial to a divorcing couple. Mediation and collaborative divorce are two different strategies used to negotiate settlements in a less combative format. (It should be mentioned that not all divorces are hostile, and using these two options can often save you money).
In cases where a married couple has already established a relationship with an investment advisor, it is in both clients’ best interest to review their finances with someone entirely new to avoid any conflict of interest. That could mean taking the collaborative/mediation route, or they could each obtain a separate financial planner.
Q) What part do emotions play in a divorce?
A) Surviving a divorce may be one of the most challenging times during one’s life. It is completely normal to feel upset and overwhelmed, but it is so important to set your emotions aside in order to make the best financial decisions for you and your family. Having a financial expert assist you in this process can absolutely help take the emotion out of your decision making. We present the figures and the projections using only logic, leaving little room for emotional decision making.
Q) How do we continue to help clients after the settlement?
A) After a divorce, you will have an entirely new set of financial circumstances. In many cases, it’s the first time an individual may be responsible for making financial decisions independently. New accounts need to be established, beneficiaries need to be updated, alimony and child support payments need to be protected and an overall financial projection needs to be consistently updated.
Fragasso Financial Advisors can provide clear, concise and detailed guidance during this transition period and well after. Though your divorce may be over, your finances will still need to be continuously updated and reviewed. The information we can provide will guide you to make well-informed financial decisions throughout your life.
Read our blog on Financial Planning Mistakes in Divorce
Listen to our Financial Planning in Divorce episode of The Advisor,
with Christine Robinette, Client Experience and Strategic Implementation Manager
Our focus in this episode of The Advisor is on the financial aftermath of divorce and how to plan and mitigate it.
Listen to this episode now!
Fragasso Financial Advisors does not furnish legal advice. Consult with a divorce or family law attorney regarding your specific circumstances.