One of the most common questions that people ask during the divorce process is: "Can I afford a divorce?"
Divorce can be financially devastating for non-financially savvy spouses as they face a precipitous drop in household income. According to a report published by the National Bureau of Economic Research, post-divorce single-parent families see an income drop of up to 45%. And women are particularly vulnerable: The U.S. Census Bureau estimates that 1 in 5 women fall into poverty after a divorce.
With those statistics, it's no surprise that financial concerns remain top of mind among women who divorce.
However, a 2019 study revealed that almost 95% of women do not work with a divorce financial planner when going through a divorce. With the financial fallout often lasting years, people who fail to seek professional help during divorce proceedings jeopardize their future.
How a CDFA can help during a divorce
A Certified Divorce Financial Analyst (CDFA) is a trained financial professional who advises clients as they navigate the economic aspects of a divorce. This can include financial education, appropriate wealth distribution, and mediation.
During divorce proceedings, CDFAs also supplement the attorney's actions, provide expert testimony and analyses of both personal/business financial records.
Just as attorneys are trained in the legal aspects of divorce, CDFAs are experts in financial analysis and retention, accounting, taxation, and cost management. They specifically deal with the long-term implications of a divorce and establish a post-divorce financial plan for clients.
For instance, a CDFA can walk a client through their expenses both before and after a divorce, and the steps they can take to ensure a sustainable lifestyle. This can be especially valuable for people who were not involved in the family's finances prior to the divorce and struggle with budgeting, managing investment portfolios, and paying bills or taxes.
CDFAs can also uncover hidden assets or financial deception during divorce proceedings. Since many CDFAs are also trained in mediation, they can ensure a fair and equitable division of assets that takes into account each party's needs and wants.
When do you need a CDFA?
A CDFA can be valuable in answering financial questions that may arise during a divorce. High-net-worth divorce cases are often complex in nature and require guidance in regard to spousal support, child support, and property division.
Assets such as the marital home and a shared bank account are fairly easy to divide. Issues often arise when the community assets in question are high-value or complex: stock portfolio, jewelry or art, real properties, and so forth.
Determining the value of the assets, how they should be divided, and how the division will affect the client in the long term require the expert guidance of a CDFA.
A CDFA can also take the emotional quotient out of the process by providing the client with financial facts and solutions, replacing worries. Divorce often triggers adverse and conflicting emotions that can affect people's judgment. Together with the attorney, the CDFA can represent the client in financial discussions to mitigate any issues that may derail the process while also offering support and guidance along the way.
Start working with a CDFA
There's no denying that a CDFA is a valuable addition to the divorce team, especially if the client has serious questions about their financial stability. Engaging a CDFA before or during the divorce process complements the legal help that the attorney provides, and may strengthen your position.
The legal system rarely forgives mistakes, and you only have one chance to get the divorce process right.
To increase your chances of a positive outcome, your best option is to talk to a CDFA as early as possible. Using their deep knowledge of finance and information gleaned from the client, a CDFA can create a realistic post-divorce plan that will consider the client's assets, liabilities, and lifestyle. A plan which informs and supplements the strategy that the legal team may choose to employ.
It’s also important to remember that financial questions are almost always the main sticking points of the divorce process, and you will want to retain a partner that looks out for your fiduciary interests. Involving a CDFA earlier in the process saves time, frustration, and money.
Got any questions? Unsure about your next steps? Book an early neutral consultation today.