by Stacy Francis, CFP®, CDFA™
You entered this profession to make a difference, be challenged, and have a fantastic career. While you have been trundling along day to day doing your normal work with clients, you may have missed an amazing opportunity to expand your career and make an even bigger impact helping clients.
You have heard the statistics many times over. Divorce happens to approximately 2.2 million people each year, and 100 percent of divorces involve financial settlements. Over 50 percent of first marriages and 70 percent of second marriages end, creating devastating financial consequence for far too many couples. We agree that the divorce rate is alarming. The biggest concern that we should have however, is that it might not be high enough, and that the people who really should be splitting are not.
I have spoken to individuals who will not get a divorce because they fear the financial consequences. They find it more appealing to stay in an, at best, unhealthy or, at worst, abusive relationship rather than become a “bag lady” or “bag man.” The recent drawn-out recession is only making things worse as two households struggle to survive on the same dollars that used to support just one.
In comes the divorce financial planner. A divorce financial planner is trained and knowledgeable about your state’s divorce laws as well as personal financial planning. They are fee-only planners who work within the context of the legal divorce process. The most prevalent designation for training is the Certified Divorce Financial Analyst™ (CDFA™). Working with a financial divorce expert can help preserve a family’s finances—which is crucial today more than ever. So if you’ve ever considered partnering with, or maybe even becoming, a divorce financial planner, here’s some insight into what we do.
Conducting a Comprehensive Assessment of the Divorcing Couple’s Finances
A divorce financial planner must complete course work and examinations as well as maintain ongoing continuing education, to test competence in the financial intricacies of divorce. Our role is to assist the client and his or her team of professionals to understand how the financial decisions that are made today will impact the future. To do this, the financial divorce expert uses sophisticated software to forecast the eventual outcome of a divorce settlement, offering greater understanding of the financial implications as well as saving the couple time and money. This person can also appear in court as an expert witness if required.
The divorce financial planner’s role is to organize, gather, and analyze all pertinent financial information. The planner also assists the team by conducting a comprehensive assessment of the divorcing couple’s financial affairs, including, but not limited to:
- What constitutes separate versus marital property?
- Outline of assets that are owned (such as homes, cars, boats, bank accounts, brokerage accounts, trusts, retirement plans, annuities, stock options, employee stock option plans, restricted stock units, businesses).
- Detail debts that are owed (such as mortgages, loans, credit cards).
- Review property to understand its cost basis, tax implications, and value, as well as how to divide it.
- Division of retirement accounts and pension funds.
- Review and revise beneficiary designations to make certain the client has named the intended beneficiary. Consider the beneficiary designation for all assets and insurance policies including life insurance, disability, transfer on death (TOD) accounts, annuities, retirement, and profit sharing accounts.
- Determine whether the client should keep, sell, or refinance the house. Alternatively determine the pros and cons of holding onto the house as an investment property.
- Analyze from a financial perspective whether a spouse should receive alimony, how much he or she should receive, and for how long—and how the payout should be structured for the greatest benefit.
- Strategize to minimize taxes and decipher post-tax implications of the marital asset split.
- Disclose every detail of all sources of income or compensation, whether or not reported on any tax return.
- Develop cash management and spending plans detailing expenses before, during, and after the divorce. Special care should be used to set up a budget that will help the client(s) adjust to a single life with new expenses.
- Understanding of Social Security elections and payouts due to the divorce.
- Review how the family has managed risk including but not limited to life, long-term care, and disability insurance, as well as property and casualty insurance needs.
- Discuss health care insurance needs and continuation of coverage.
Alleviating Fear, Anger, and Ignorance with Accurate Data
According to the Association of Divorce Financial Planners, divorce financial planning helps the client by alleviating fear, anger, and ignorance by providing him or her with a clearer picture of the current and future financial situation. We have seen this many times in our practice—seemingly greedy or alternatively tightfisted spouses only behaving in this manner because of their concern about being stripped of their financial security and rendered financially destitute by the divorce settlement. Misinformation or misconceptions about the divorce settlement can be detrimental and divorce financial analysis can help ensure a stable economic future. The role of the divorce financial planner is to make sure the client(s) understands the financial implications of the divorce settlement, and all assumptions, data, and outcomes are 100 percent clear.
Creating Peace of Mind Using Scenarios
The main question all clients ask is, “Am I going to be financially okay?” Divorce financial planners provide peace of mind and comfort by forecasting whether or not the client is going to be “okay.” We model each of the divorcing party’s expected net worth, cash flow, savings, investments, and taxation level for 3, 5, 10, and even 30 years. Financial divorce experts test various scenarios and review countless factors including higher or longer lasting maintenance, child support, alternative property disposition and the impact of a house sale, college funding, and business sale or structured payout on each of the client’s net worth.
Developing Detailed Budgets for a Smooth Transition to Single Life
A divorce financial planner is an expert in helping clients transition from a married to a single life. This includes helping the client get clarification about their spending. Most clients have no idea what their real spending is and greatly underestimate their true outflows. If we do not know what the client’s living expenses are, we cannot accurately advise them as to their ability to pay their bills after the divorce.
We document all of their current expenses using credit card statements, checking and savings account statements, and any brokerage accounts used for ongoing spending. We then develop an accurate cash flow representing their current spending.
Once we understand the current spending, we must also develop a realistic monthly budget post divorce. Expenses such as life insurance and health insurance—as well as inflation—must be taken into consideration. At times, we also must help the client adjust to a lower standard of living.
As you can discern, the career of a divorce financial planner is fulfilling, challenging, and a wonderful way to make a real difference in the lives of clients who need you more than ever. Clients can make terrible financial decisions when they are in the throes of a divorce, but it does not have to be that way with your help.
Attaining the CDFA for becoming a divorce financial planner is a rapidly increasing trend, and if you’ve ever thought about gaining this expertise, it is the perfect time to consider this profession and seek its specialized training. That being said, you should understand the liability of practicing outside your area of expertise and comfort zone. You must have a full understanding of and specialized training in divorce before you step into a client engagement. For more information regarding the first steps to becoming a divorce financial planner, I suggest visiting the Association of Divorce Financial Planners website (www.divorceandfinance.org), which provides articles and additional information to get you started.
Stacy Francis, CFP®, CDFA™, is co-chair of the Association of Divorce Financial Planners New York Chapter. Her firm, Francis Financial Inc., is an independent, fee-only firm that provides comprehensive financial planning and investment management services. Francis is also the founder of Savvy Ladies, a nonprofit organization dedicated to empowering women through financial education, which has worked with over 10,000 men and women on a pro bono basis.
[Editor’s note: While the Journal of Financial Planning does not make recommendations regarding professional credentials, we will be exploring various niches within the planning profession with experts in each field at points throughout the year to help illuminate options for growing your business and exploring new pathways to learning.]