Divorce evokes emotions like sadness, anger, frustration, apathy, and to some a sense of freedom. Today, the divorce rate, measured by the cohort method, is declining but remains between 40 – 50%. Common to some but foreign to others, the typical parties to a divorce are the couple, their attorney(s), and the respective families and friends. While the attorneys are the only ones trained in divorce law, the others tend to share their perspectives with the soon-to-be divorcee in an attempt to show support. As assets, income, alimony, and child support are discussed, each believes they have insightful guidance on how to split the marital estate. However, unless they are financial experts, the aforementioned individuals are not well versed in the intricate details of completing financial projections, how to divide pensions, the tax impact of splitting retirement vs non-retirement assets, and much more. These areas should be directed to someone you can trust, who is knowledgeable in these topics, and who will work with you and your attorney to reach a fair and equitable settlement. So who do you turn to in your emotionally charged time of need? Can anyone trained in finance help you? How do you know if you can trust them?
Titles Say Little. What Your Professional Can Do Says Everything.
Throughout my career I have fought an uphill battle educating investors on the difference between insurance agents, stock brokers, investment advisors, and financial planners. While an overlap can exist in the services offered, the largest distinction can be seen in their professional training and what they do with clients. Commonly referred to as a "jack-of-all-trades and a master of none" these professionals cast their nets wide in the hopes of attracting anyone willing to listen to them. This is why there are advanced designations (think licenses or certifications) that allow these professionals to specialize in specific disciplines. Unfortunately, according to Financial Industry Regulatory Authority (FINRA) there are 168 designations at the time of writing this article. Of those 168 designations, 7 have received an accreditation from either the American National Standards Institute or the National Commission of Certifying Agencies. Does this mean accredited designations are better than non-accredited designations? Not necessarily. Let's compare the accredited Certified Financial Planner designation to the non-accredited Certified Divorce Financial Planner designation.
A CERTIFIED FINANCIAL PLANNER(TM) practitioner's primary focus is on their client's overall financial health. They are required to go through extensive initial, and on-going, training to learn about five fundamental areas of your financial life: Insurance, Investment, Estate, Retirement, and Tax Planning. They do not provide legal or tax advice but work closely with those professionals. To use an analogy, think of the Certified Financial Planner practitioner as the general health practitioner and the accountant or attorney are the respective specialist. A client might go to the general practitioner once in a while but usually finds an ongoing relationship is best in order to make sure changes in one's life, or the market, are addressed immediately.
A Certified Divorce Planner, or Divorce Financial Analyst, could be thought of as a specialist. While they are trained on the basics of retirement, insurance, and investment planning their primary training is focused on how to help their clients navigate the financial decisions of divorce. Like the general practitioner, they do not provide legal or tax advice. However unlike the general practitioner, once the event is over their relationship with the client ends.
How then do you determine which financial planner is best suited to help you?
This is where understanding the help you need, the educational background of different professionals, and whether they hold themselves to a fiduciary standard, can help narrow down the field to someone best suited to assist you.
A Certified Divorce Financial Analyst
In order to find someone you can trust you need to know what you are looking for. Unfortunately it is difficult to find someone if you do not know you need help, or that such a resource even exists. Enter a Divorce Financial Planner. What is a CERTIFIED DIVORCE FINANCIAL ANALYST@ (a.k.a CDFA® or Divorce Financial Planner)? According to the Institute of Divorce Financial Analysts, the role of the CDFA® is to assist the client and his/her lawyer to understand how the financial decisions he/she makes today will impact the client’s financial future. Additionally, if an attorney has accumulated a fair amount of financial expertise throughout their legal career they cannot testify on behalf of their clients as a financial expert, where a Certified Divorce Financial Analyst can. A CDFA® goes through intensive training on topics like:
- Completing detailed financial projections for different settlement options.
- How the nuances of spousal support vs child support can affect your tax situation.
- The impact of dividing current assets and guaranteed income on your retirement.
- Evaluating the cash flow impact of taking over the primary residence against saving for other goals.
- Forecasting your insurance needs to protect your standard of living, replace lost alimony payments, guard against a premature disability or death, and more.
- How to evaluate, develop, and manage a budget after divorce.
- Determining the appropriate investment risk of your portfolio for your short and long-term goals, after divorce.
How To Find Someone You Can Trust
There is no standardize approach for finding a professional you can trust, however many use the referral method. When using this method, the first step in finding a trusted professional is to ask for a reference or a referral. This reference could come from friends, family, or other financial professionals. However you would have to trust your referrer's judgement. Next, once you receive a name and decide to attend the initial meeting, you will need to evaluate them. To evaluate the professional ask them questions like:
- How long have you been practicing in your field?
- Why did you decide to work in this field?
- What is your educational background? Do you have any advanced designations?
- What areas do you focus your practice in?
- What is your average client profile?
- How many clients do you actively work with on an on-going basis?
- What process(es) do you use when working with a new and existing client?
While these questions are only a sampling of the many that could be asked, they should help you evaluate the person's background, intentions, business practice, and work ethic.
Finally, after you have met with enough people to decide who is best suited to assist you technically, you need to evaluate the emotional element. You are about to share some very sensitive information with this person. An advisor's compassion, understanding, and patience are critical in the transfer of information between you and them. For most people financial concepts are not easily understood and it may require explaining the information in different ways before it is fully grasped.
Most of the time you will not be able to find someone you completely trust from your initial meeting. In your search for the best possible outcome, sound financial guidance, expert analysis, and emotional intelligence are important resources your CDFA® should have when helping you reach an equitable distribution. Remember, at any point, if you do not feel comfortable with the person you are working with you should re-evaluate the relationship and determine if it is a better financial decision to find someone else.
**The material was created for educational and informational purposes only and is not intended to provide specific recommendations, tax, or legal advice.