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Going through a divorce can be emotionally and financially painful. To speed the process, you may hastily agree to divide your assets in a way that seems fair at the moment, but isn't the best option for your long-term financial health. That's where a divorce financial analyst comes in.
Divorce financial analysts are financial professionals who help you work out the financial aspects of your divorce and secure a settlement strategically planned to benefit you in the future.
What Is a Divorce Financial Analyst?
Certified divorce financial analysts (CDFAs) are certified by the Institute for Divorce Financial Analysts after demonstrating relevant experience, undergoing intensive training and passing an exam. They also take continuing education courses to maintain their certification.
Certification as a divorce financial analyst requires three to five years' experience in financial planning or family law. Many CDFAs also have experience in taxes, investment advising, real estate and mortgage lending, life and disability insurance, and financial coaching. Their expertise in a wide variety of areas related to divorce allows them to dig deeply into a couple's finances, consider the long-term financial ramifications of your divorce settlement and pinpoint potential problems you and your lawyer may not have thought about.
What a Divorce Financial Analyst Can Help With
Divorce financial analysts specialize in considering the long-term ramifications of a divorce settlement. What seems at first glance like an equitable split may put one partner at a disadvantage. For example:
- Accepting child support based on your current child-rearing budget could leave you financially strapped when those expenses increase as the children grow.
- Taking sole ownership of the family home could backfire if you can't afford the maintenance, repairs and property taxes.
- Getting your ex's retirement account won't help your cash flow if you can't withdraw the money without being penalized or taxed.
Divorce financial analysts are trained to evaluate the big picture, including:
- Estimating your current and future expenses
- Predicting how inflation may affect your cost of living
- Assessing the current and future value of your assets
- Determining how to divide personal and marital property
- Deciding what to do with the family home
- Explaining the tax implications of dividing assets or transferring property
- Considering how your insurance needs may change after a divorce
- Estimating the future value of pension plans and retirement accounts
- Appraising proposed divorce settlements for potential financial risks
How to Tell if You Need a Divorce Financial Analyst
If you don't have children, have few assets and both spouses are employed, dividing your property can be fairly straightforward. In this situation, you may not need a divorce financial analyst. However, you may want to consider hiring a divorce financial analyst if:
- You have considerable assets that aren't easily liquidated, such as real estate.
- One spouse controls the finances, while the other is involved minimally or not at all.
- You can't agree on what is personal property vs. marital property.
- One spouse is the sole wage earner or makes significantly more money than the other.
- One or both spouses own a business.
- One or both spouses have retirement accounts, investment accounts, pension accounts or executive compensation packages.
- You're seeking child support or spousal support.
- You own a home.
- You need help accurately estimating your current and future living expenses.
- You'd like professional help planning for your post-divorce financial future.
The same financial planner who advised you as a couple may not be able to counsel both of you on divorce-related financial matters. Fiduciary financial advisors are legally required to avoid conflicts of interest, such as giving advice to both parties in a divorce.
Pros and Cons of a Divorce Financial Analyst
Hiring a divorce financial analyst has its pros and cons.
Pros
A CDFA can:
- Provide an objective opinion to help you make informed decisions at an emotional time.
- Ensure your current and future cash flow needs are accounted for by asking detailed questions about your income and expenses and reviewing your financial records.
- Explain the tax consequences of various settlement options so you can weigh the ultimate costs and benefits. (For instance, recipients typically don't pay taxes on child support, but spousal support is considered taxable income.)
- Help you avoid common financial errors. For example, you might remove your name from the deed to the family home but not remove your name from the mortgage. Unless your ex-spouse refinances, your credit could suffer if they miss mortgage payments.
- Provide guidance on managing your money after divorce. If making a budget and paying bills are new for you, a CDFA can help you start off on firm financial footing.
- Help you determine your financial priorities. Your CDFA can help you identify and work toward financial goals such as planning for retirement, paying for your children's college education and buying your own home.
Cons
- A CDFA may not be necessary if your divorce is amicable and dividing your assets is simple.
- Hiring a CDFA is an additional expense at a time when your budget may be tight. Because a CDFA's expertise could ultimately make a huge difference to your finances, however, it could be worth getting a personal loan to hire one. Personal loans usually have lower interest rates than credit cards, and come with predictable payments that you can easily work into your post-divorce budget.
How to Find a Divorce Financial Analyst
You can find a certified divorce financial analyst by:
- Getting referrals from friends, relatives or other financial professionals
- Asking your divorce attorney for recommendations
- Visiting the IDFA website to search for CDFAs in your area
CDFAs usually offer initial consultations for free and typically charge an hourly rate that can range from $120 to $250 or more. You may be able to find divorce financial advisors who charge on a sliding scale or allow you to make payments over time.
Before hiring a divorce financial analyst, check references, search online for any complaints and visit FINRA's BrokerCheck to research the person's background and professional history.
The Bottom Line
Whether or not you choose to work with a divorce financial analyst, taking steps to protect your credit during divorce will help to minimize its impact on your finances. Remove your name from joint credit accounts, make timely payments on your credit cards and other bills, and check your credit report and credit score regularly. Signing up for Experian's free credit monitoring service can help you keep tabs on your credit, giving you one less thing to think about during a stressful time.