Many people (mistakenly) believe that their lawyer can handle all aspects of their divorce.
You see, divorce is likely the single biggest event of your financial life. It’s also riddled with financial and tax landmines. That’s why it’s so important to understand the impact of your decisions so you can avoid costly mistakes.
Enter a Certified Divorce Financial Analyst.
So, what does a Certified Divorce Financial Analyst do? And do you really need one?
In this guide, I’ll cover that and more:
- What does a Certified Divorce Financial Analyst (CDFA) do?
- Do I really need a Certified Divorce Financial Analyst?
- What is the CDFA designation?
- What financial information do I need to prepare for divorce financial planning
- How much does a CDFA cost
- Where can I find a Certified Divorce Financial Analyst near me?
- What to look for in a CDFA
- What point in the divorce process to hire a CDFA
- CDFA vs. financial advisor: what’s the difference?
- The difference between a CDFA and a forensic accountant
- Whether you need a CDFA if you have a lawyer
What does a Certified Divorce Financial Analyst do?
A CDFA takes the team approach and provides expert financial counsel to an attorney and other advisors for a client specifically working through the issues of a divorce. This collaborative approach makes a CDFA a valuable voice to support an attorney’s efforts and may include providing testimony as an expert witness and deep analysis of business, financial and personal asset records.
Attorneys are well versed in legal aspects and may have a certain degree of financial knowledge when it comes to divorce, but a CDFA is specifically trained to deal with the financial impacts and long term implications that a divorce can create.
In addition to providing an overview of financial strategies and analysis, a CDFA will also drill down on more specific issues such as tax consequences of settlements, how to divide pension plans, stock options and other assets, the impact of health care coverage, life insurance, and the implications of splitting the family home and other real property interests.
A CDFA can also assist with budgeting for post-divorce to give a client an idea of what to expect going forward and help to readjust expenses, investment portfolios and financial goals after the fact. They will also be able to factor in child support and spousal support to create an effective and comprehensive financial snapshot and strategy as well.
CDFAs will have experience in accounting, financial planning and/or the legal profession which has been augmented by a specialized and intensive training program through the Institute for Divorce Financial Analysts to earn the CDFA designation.
In some cases, CDFAs are also professionally trained as mediators or in collaborative divorce who can facilitate these types of situations if needed. CDFAs are generally not attorneys, however, and as such, they are not permitted to provide legal advice.
Do I really need a Certified Divorce Financial Analyst?
Short answer: It depends.
There are a number of things to consider if you’re thinking about hiring a CDFA. In many cases, just using an attorney will meet all of a divorce client’s needs. But there are times when retaining a CDFA is warranted.
Even if you have a fair amount of assets, but they are easily identifiable and quantifiable, then you probably do not need a CDFA to assist you. For example, if you have $300,000 in a retirement account, a family home, and you are an employee at a company, then you may be able to easily divide your assets without too much trouble or guidance.
But if there is any level of complexity in your assets, such as multiple holdings, multiple pieces of real property, business holdings, high-end jewelry or art pieces, and so forth, things can get tangled up quickly. Trying to place a valuation on all these assets, and then determining how they should be divided and what the financial implications are of that division can be a daunting task, even with an attorney on board.
Other issues that can complicate a financial profile of a couple during divorce are if one or both spouses are self-employed, or they are one of several partners in owning a business. Consideration also needs to be given to disagreements that might arise over what is separate property or marital property. Proving assets have been commingled or kept separate can also lead to the need for detailed analysis before any kind of division can take place.
Another thing to consider is the emotional quotient of a divorce. In high conflict situations, it might be best to create a legal and financial shield around yourself to protect you from a nasty spouse and any dirty tricks they might attempt to pull on you.
An attorney and a CDFA can offer a high degree of protection and insulate a spouse from taking too much of an emotional hit while discovery, negotiations and settlement talks are taking place.
A CDFA and attorney can also advise a spouse on what is worth fighting about and what is not, based on deep analysis. They can perform a “what if” scenario that will help a spouse understand the implications of accepting a deal or not. Creating a cost-benefit analysis will save time and money when used to assist in a decision-making process.
What is the CDFA designation?
Much like a CPA, MD or DDS designation, when a financial professional earns the title of Certified Divorce Financial Analyst, it means they have made a certain level of commitment to specialize in divorce financial planning.
The Institute of Divorce Financial Analysts (IDFA) oversees the certification and credentialing process for CDFAs. The organization has established standards that are objective and reliable and meet the current benchmarks for certifying bodies. It makes sure that designees are in compliance with these standards through monitoring and enforcement.
However, it’s best to keep in mind that simply earning a CDFA designation is not enough to ensure that a client’s interests are completely and thoroughly represented. You will want to ask a CDFA several questions to make sure they are fully vetted and they have significant hands-on experience.
Questions to ask a Certified Divorce Financial Analyst
- What percent of your practice is focused on divorce? How many cases did you have last year?
- Do you have any specific niches? What are they?
- Do you do Mediation? Litigation? Collaborative Divorce? What percentage of your practice is devoted to each?
- What is your experience in cases involving high-asset divorces? Closely held businesses? Investment properties? Executive compensation and RSUs? Hidden assets? (Ask as appropriate to gauge experience with any particular issues/concerns)
- My attorney is _____ (your attorney’s name). Have you ever worked with them? What is your relationship and experience with them?
- My spouse is working with _____ (attorney’s name). Have you ever worked with them? What is your relationship and experience with them?
- Would anyone else in your firm be working on my case? What work will they do, and what are their backgrounds?
- How do you charge? What is your hourly rate? What are the hourly rates of other staff that will be working on my case?
- Do you require a retainer? If so, how much?
- How often do you bill?
- Do you accept credit cards?
- How do you work with other divorce professionals on the team?
- What can I do to keep the cost of my divorce down?
- What credentials do you have? Are you a CDFA, CFP, CPA, or CFA?
- Can you continue working with me after the divorce?
- Do you manage investments? If so, what percent of your time is spent on investments and wealth management (non-divorce)?
What financial information do I need to gather to prepare for divorce financial planning?
Depending on your situation, you may need to gather quite a bit of personal, financial and business information. To protect your financial position to the highest degree possible, you must be forthcoming and provide full disclosure regarding all your marital assets and liabilities.
Starting early and being organized in your approach are keys to successfully completing this critical task. It will take time to pull together your information, but you’ll need do this to make sure your legal rights are protected and to give yourself the best chance of achieving the optimum short and long term financial plan possible.
The vast majority of the information you need to pull together will probably be required as part of the financial disclosure requirement. So, the easiest way to approach this task is to make an extra copy of your financial documentation that you can turn over to your divorce financial planning professional.
This also ensures there is uniformity in the information that is being used by your team and by your spouse’s team.
What exactly will you need to gather?
Glad you asked! To make things easy for you, we put together a great guide: The Ultimate Divorce Checklist: Everything You Need to Prepare for Divorce. It spells out all the financial and personal information you’ll need to pull together to prepare for divorce.
How much does a certified divorce financial analyst cost?
Most CDFAs charge an hourly rate of between $150 to $400 per hour. Part of this will vary on what region of the country a CDFA works in.
For example, in Silicon Valley (where I practice), a CDFA may charge about $350 or more per hour. But in the mid-west, that hourly rate may drop to somewhere around $200 per hour. Of course, experience plays a big role in how much a CDFA charges.
Don’t base your decision on who to work with solely on hourly rate. That’s a big mistake. To a certain extent, your financial future is in the hands of the CDFA you work with. Expertise may come at a premium, but it’s worth it.
For cases involving significant assets and a greater degree of financial complexity, a CDFA’s overall fees may run several thousands of dollars. But the key is to remember that based on the outcome of the analysis and counseling provided, there is the best chance to save a considerable amount of money in a final settlement.
The vast majority of people who use a CDFA come to realize that it is an investment that pays for itself many times over.
Where can I find a Certified Divorce Financial Analyst near me?
The Institute for Divorce Financial Analysts maintains a nationwide database you can use to Find a CDFA Professional here. You will also find a wealth of other information on the IDFA website to assist you in learning more about the role that a CDFA can play in your divorce.
What should I look for in a CDFA?
Although a financial professional may have earned a CDFA designation, a potential client should view this as a beginning qualifier instead of the final decision about who to retain.
To find the best possible CDFA, you will need to vet them further, finding out the extent of their knowledge of divorce law, especially as it applies to your particular state. You will also need to make sure they are staying abreast of the latest changes in tax laws and that they are interpreting laws the right way to produce the best possible outcome for you.
CDFAs may be involved in several kinds of financial work, so you will also need to determine how many divorce cases a year they handle and what percentage of their overall workload is devoted to working on divorces.
If you retain a CDFA, also consider retaining someone who is also a Certified Financial Planner (CFP). A CDFA has specialized training in the financial and tax aspects of divorce, while a CFP has broad expertise across all facets of financial planning.
There are other highly specialized divorce financial analyst specialists who may be able to assist you as well. These may include a Chartered Business Valuator (CBV), a Certified Fraud Examiner (CFE), a Certified Valuation Analyst (CVA) and other financial professionals who can provide you with financial analysis and accounting services.
When should I hire a Certified Divorce Financial Analyst?
If your divorce has any level of complexity, your best move is to retain a CDFA as early in the process as possible. You will need to gather a lot of information to assist a CDFA in their analysis and the earlier in the process you begin a dialog, the more organized you can be with the added input a CDFA can provide you.
Also keep in mind that questions related to finances will start early in the divorce process. Often times it is the financial issues that break up a marriage and those issues will carry forward until they are resolved.
Unfortunately, because there is a great deal of sensitivity in this area, objectivity can be clouded by emotions and that can make the process more difficult and draining than it needs to be.
A CDFA can remove much of that emotional quotient as well as other noise to provide you with options based on facts and analysis that you might not be able to see on your own. A CDFA can also present creative options as well. But to do so, they must have time to take in your complete financial picture before they can present you with a full complement of options to choose from.
What’s the difference between a CDFA and financial advisor?
On the surface, the services that a CDFA and a financial advisor provide appear similar. Financial advisors may go by various titles such as wealth manager or financial planner.
Both will help clients identify goals, and both will take inventories of current assets and liabilities before conducting an analysis of how to reach those goals.
The biggest difference between the two is that a CDFA performs these services within the context of a divorce vs. a financial planner who will help couples and individuals whether they are happily married or not.
Because a CDFA specializes in couples who are divorcing, they will be able to bring a higher degree of specialized knowledge to this situation. They will be more familiar with the divorce laws in your state and the financial and tax implications of divorce.
What’s the difference between a CDFA and a forensic accountant?
The roles of a CDFA and a forensic accountant overlap, but there are some significant differences.
Forensic accounting is a specialty area of accounting that describes actual or possible legal disputes. The term “forensic” actually means suitable for court, and forensic accountants often approach their work with that standard and possibility in mind. Knowledge of the courtroom sets the forensic accountant apart from a typical accountant.
Forensic accountants often look backward into the finances of a person or business, utilizing their accounting, auditing and investigative skills to determine what took place in a particular financial instance. They may be called upon to determine business valuations or help to provide evidence regarding business buyouts or other similar transactions.
They may also be called upon to investigate claims of fraud or in the case of divorce, hidden assets, making sure that the numbers presented in a divorce case are indeed a reflection of financial reality.
Part of their efforts may also be involved with recovering or uncovering hidden assets so that a fair and equitable division of assets can take place in a divorce. A forensic accountant is usually hired after a spouse suspects theft, fraud or embezzlement of marital assets.
In some divorce cases, a forensic accountant will be asked to write expert reports, assist in depositions, testify as an expert witness, conduct fraud and civil investigations.
On the other hand, a CDFA will take more of a blended and forward-looking approach, attempting to take the known assets that are in place and craft an optimal strategy to protect a client from any downside while maximizing the upside investment and allocation strategy for the future.
Do I need a CDFA if I have a divorce lawyer?
The roles of a divorce lawyer and a CDFA have some cross-over but the roles can be quite different depending on the circumstances of a divorce.
If your divorce is not financially complicated, you may not need to retain a CDFA. You may only need to retain a divorce lawyer. However, at no point should you hire a CDFA at the expense of hiring an attorney.
Lawyers will provide you with overall counsel on legal issues and the role of the CDFA is to support the lawyer, not to supplant them.
For example, a lawyer may negotiate a settlement on behalf of their divorce client, but if there is any degree of complexity in the financial aspects of the settlement, then the CDFA would provide specialized analysis to help the entire team decide if the settlement is a smart deal or not.
Conversely, a CDFA might also assist an attorney on the front end of crafting a settlement agreement to be presented to the other divorcing party. This can save time, frustration and money up front while protecting the client’s financial interests.
Where can I learn more about divorce financial planning?
Glad you asked! You can learn all about what divorce financial planning entails here.
Looking for more great tips on divorce and money? Here are a few of our favorite guides and resources: