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Do I need a divorce financial advisor?

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Divorce represents a substantial life-changing event, marked by emotional, legal, and financial complexities. Amidst the emotional turmoil, it’s imperative to address the financial aspects of your separation with a clear and objective perspective.

This is where the expertise of a divorce financial advisor becomes invaluable. In this article, we will explore the pivotal role these professionals play in divorce proceedings, the comprehensive range of services they provide, and the profile of clients who can reap the benefits of their specialized knowledge.

What is a divorce financial advisor?

A divorce financial advisor assists in creating a financial strategy both during and post-divorce. They customize the offerings typically provided by a conventional financial advisor, which include investment management, tax planning, and budgeting, to cater to the specific needs of individuals undergoing divorce proceedings.

Several advisors carry the professional designation of a Certified Divorce Financial Analyst (CDFA), a credential awarded by the Institute for Divorce Financial Analysts. Holding a CDFA designation signifies that these financial advisors are equipped to guide you through critical issues such as:

  1. Assessing the immediate and long-term consequences of property division.
  2. Understanding the tax ramifications of divorce.
  3. Analyzing retirement plans and pension considerations.
  4. Assessing the affordability of retaining the marital residence.
  5. Evaluating insurance requirements.

It’s essential to note that a CDFA is not a divorce attorney and, as such, cannot dispense legal counsel. However, they can serve as a valuable member of your divorce support team, offering assistance in litigation and collaborating with both you and your attorney.

A CDFA can additionally assist in the legal discovery process, aiding in the preparation of your financial affidavit and crafting a marital net worth balance sheet.

Following the divorce, a financial advisor can support you in crafting a fresh financial strategy. They can assist in structuring a budget tailored to your new single-person financial status and offer insights on safeguarding your credit score.

The services of a Certified Divorce Financial Analyst typically come at an hourly rate of approximately $300 or an average cost ranging from $3,000 to $6,000 per case, as reported by the Center for Divorce Financial Planning.

Role of a divorce financial advisor

The principal function of a divorce financial advisor is to offer professional guidance on the financial implications of divorce and assist you in formulating a post-divorce financial strategy.

Lawyers are experts in legal matters, but they may not necessarily possess in-depth financial expertise. In contrast, a divorce financial planner specializes in conducting comprehensive financial analyses to assess the potential impact of a divorce settlement on your financial well-being.

A divorce financial advisor can also:

  1. Act as an expert witness in court, mediation, or arbitration proceedings.
  2. Gather and organize financial data.
  3. Assist in clarifying your future financial objectives.
  4. Create a personalized budget.
  5. Establish retirement goals.
  6. Evaluate your risk tolerance for investments.
  7. Calculate the expenses associated with your children’s education.

By meticulously evaluating all financial accounts, investments, and assets, a divorce advisor ensures an equitable distribution, reducing the risk of costly errors during asset division.

For instance, consider a scenario where a couple opts to split their retirement accounts seemingly fair evenly. However, if one party receives assets from a traditional IRA while the other receives assets from a Roth IRA, it creates divergent tax consequences. The individual with the traditional IRA may face tax obligations upon retirement fund withdrawals, whereas the recipient of the Roth IRA will enjoy tax-free withdrawals.

While an attorney might overlook such considerations in the settlement process, a divorce financial advisor can proactively assess long-term financial implications like these before the separation is officially concluded.

Who needs a divorce financial advisor?

Engaging the services of a divorce financial advisor is advisable for couples with substantial assets. It can also prove valuable when the partners have a significant disparity in financial awareness and knowledge.

Hiring a divorce financial planner may be particularly advantageous when dealing with intricate circumstances, such as:

  1. Ownership of a business by one or both partners.
  2. Ownership of substantial real estate holdings or diverse investments.
  3. The need for assistance in navigating the division of retirement accounts or pensions.
  4. When one party is pursuing alimony or child support arrangements.

For instance, in cases where one spouse possesses a business, a financial advisor can scrutinize factors like cash flow, inventory, and business valuations to secure an equitable settlement and deter any potential income concealment.

Nonetheless, if you and your soon-to-be ex-spouse have limited assets, minimal debts, and share a consensus on the equitable distribution of belongings, it’s likely that you may not require the services of a divorce financial advisor.

How to find a divorce financial advisor

You can initiate your quest for a financial advisor through online resources. After pinpointing potential candidates, schedule initial consultations. In these meetings, you can assess the advisor’s proficiency and seek answers to your inquiries.

Some relevant questions to pose during the initial consultation include:

  1. Have you handled cases akin to mine?
  2. What is your preferred mode of communication, and how frequently will we communicate?
  3. How do you typically collaborate with divorce attorneys?
  4. Can you elucidate a scenario where you assisted a client in achieving a favorable outcome?
  5. Could you provide a comprehensive breakdown of your fee structure?
  6. What financial services do you offer post-divorce?

If you’re considering engaging a Certified Divorce Financial Analyst (CDFA), you can utilize the search tool available on the Institute for Divorce Financial Analysts’ website to locate a professional nearby. Additionally, you can explore the Association of Divorce Financial Planners, an organization dedicated to financial experts with expertise in divorce-related matters.

Financial planning tips for divorce

Divorce brings about distinct financial challenges. In addition to enlisting the services of a divorce financial advisor, here are some other financial considerations to keep in mind:

  1. Develop a Financial Checklist: Establishing a comprehensive checklist is crucial for staying on top of essential financial tasks. This includes updating legal documents, creating a new budget, and monitoring credit reports.
  2. Review Beneficiary Designations: It’s vital to review and update beneficiary designations on life insurance policies, retirement accounts, and bank accounts to ensure the intended recipients receive the benefits in the event of your passing.
  3. Close Joint Accounts and Credit Cards: The closure of joint bank accounts and credit cards is necessary to safeguard both parties from potential disputes and unauthorized transactions.
  4. Assess Health Insurance: If you were previously covered under your spouse’s health insurance plan, you’ll need to secure alternative coverage, either through an employer, private plan, or the federal government’s Health Insurance Marketplace.

In addition to your attorney and a financial advisor, it may be beneficial to explore consultations with other experts throughout the divorce proceedings, such as a certified public accountant or an estate planning attorney.

Bottom line

Building a dependable team of experts is crucial during a divorce. Including a financial advisor in your team can significantly simplify handling intricate financial matters, particularly in cases involving high net-worth couples.

From assessing the financial ramifications of different settlement scenarios to aiding in formulating a post-divorce budget, a financial advisor can be a valuable and supportive partner during this emotionally demanding period.

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