By Frank Fantozzi, CDFA

A CDFA is a Certified Divorce Financial Analyst™ who has received special financial training from the Institute for Divorce Financial Analysts™ (IDFA™).[1]   CDFA’s are professionals who help their clients with financial issues and in a divorce can help them gain equitable settlements on those finances. A CDFA™ has knowledge and expertise in the following areas:

• Personal vs. marital property

• Valuing and dividing property

• Retirement assets and pensions

• Spousal and child support

• Splitting the house

• Tax problems and solutions

• Expert witness testimony

• Tax law and financial issues affecting divorce

• An overview of divorce law

• Software enabling them to project a proposed settlement 15, 20, 30 years into the future to see how the settlement will affect both parties in the long run

• Software and other tools to resolve their cases

• Know how to value and divide property, whether or not to split the house, and how to give expert testimony in court

• Understand retirement and pensions, spousal and child support, tax laws, and solutions to tax problems

The CDFA’s Role in the divorce Process

Choosing a financial expert can be confusing. There are many designations for a financial expert, including: Certified Public Accountant (CPA), financial planner, Certified Financial Planner™ (CFP™), Chartered Financial Consultant (ChFC), accountant, and Certified Divorce Financial Analyst™ (CDFA™). Not all of these experts have the same role.

The role of the financial planner, CFP™ or ChFC, is to help people achieve their financial goals regardless of whether they are divorcing or happily married. First, they learn about their client’s goals. The next step is to determine what assets and liabilities the client has.  The planner then looks at what needs to be done to achieve the client’s goals. These goals can be from a one year goal to a goal fifty years in the future. Unfortunately, to look that far into the future, certain assumptions need to be made. Assumptions include future income, expenses, inflation rates, interest rates, and rates of return on investments. If long term planning is going to happen, the assumptions need to be reviewed on a regular basis. Then, if the client is not on track, the planner will then make recommendations as to what changes need to be made. In other words, the financial planner looks at financial results in the future based on certain assumptions made today to see if the client is on track to meet their stated goals and objectives.
 
Conversely, an accountant or CPA typically looks at the details of the scenario as it is today and makes no future projections. In a divorce, they are hired to calculate the tax effect of dividing property and the effect of spousal and child support for one or two years. They typically do not project into the future. They may also be retained to perform an audit of account activity or to perform forensic accounting functions to help find “hidden assets”. 
 
If both of these roles are needed in a divorce, a professional who is designated as an CDFA™ can fill this need.

The role of the CDFA™ is to partner with the client and his/her attorney to understand how the financial decisions he/she makes today will impact the client’s financial future.

A CDFA™ is someone who comes from a financial planning, accounting, or legal background and goes through an extensive training program to become skilled at analyzing and providing expertise on the financial issues of divorce. The CDFA™ becomes an important part of the divorce team and provides support for the attorney and client on financial issues such as:

• Determining the short-term and long-term effects of dividing property

• Identifying tax issues for divorcing couples

• Analyzing pension and retirement plans

• Calculating the present value of a pension

• Determining the cost basis and capital gains on the sale of the marital home

• Determining if a client can afford the marital home, and if not, what he/she can afford

• Evaluating the insurance needs of the clients, and determining if a client qualifies for    COBRA

• Determining earning capabilities

• Establishing assumptions for projecting inflation and rates of return

• Providing clients and attorneys with data that shows the financial effect of any given    divorce settlement, and

• Planning for the education clients desire for their children

A CDFA™ can help the attorneys in an alternative dispute resolution process by assisting the clients in:

• Collecting financial and expense data

• Helping them identify their future financial goals

• Developing a budget

• Setting retirement objectives

• Determining how much risk they are willing to take with their investments

• Identifying the lifestyle they desire

The skills of a CDFA™ bring an innovative and creative approach to settling cases.

Example Of How A CDFA™ Could Help A Divorcing Couple

John and Jane are 40 years old and have two children. They own a home worth $165,000 with net equity of $77,500. Their IRAs and 401(k) retirement plan total $165,500 in value. John earns $90,000 a year and has take-home pay of $68,760 a year. Jane has never worked outside the home and has no job skills, but she hopes to get a job with take home pay of $14,900 a year.
 
The following settlement has been suggested. After the divorce, Jane and the children will live in the marital home, which will be transferred to her. She will also receive $44,000 from the retirement assets and John will receive $121,500 from the retirement assets, thus dividing the assets equally. John will pay Jane spousal support of $600 per month for five years and child support of $225 per month per child. He will also pay college costs, which start in four years. John’s expenses include his normal living expenses, child support, spousal support, and college costs. Jane’s expenses include support for the children, and will go down as each child leaves home.
 
This appears to be a reasonably fair settlement. However, an analysis creates the financial future illustrated in “Net Worth: John and Jane #1” (below). Jane’s assets will be completely depleted within seven years while John’s investments will grow dramatically.
To improve Jane’s financial future, the settlement could provide her with increased spousal support of $1,500 per month for 10 years. This would actually cost John $1,065 per month in after-tax (Federal and State) dollars. Child support should be $1,125 per month for two children for a couple with their income, according to their state’s Child Support Guidelines. Jane could also be awarded an additional $24,300 from the retirement assets. She may also need to cut her expenses by 10%.
 These changes in the original settlement will produce the results illustrated in “Net Worth: John and Jane #2” (below). John will still have a surplus, which he can add to his investments. If John stays within his budget and invests all of his extra income, his investments have the capacity to grow to $2.5 million by the time he is 60. This sample case illustrates the value of financial planning as a means of reaching a more equitable divorce settlement. If the court’s intent is to treat both parties in a divorce as equitably as possible, it is essential to analyze the marriage as if it were a financial contract with tangible investment in the contract from both parties.

Who Should Utilize A CDFA™?

Theoretically, all individuals going through the divorce process could benefit from financial counseling and advice. However, not all individuals can afford this service, or their situation is not complex enough to warrant the level of analysis that a CDFA™ can provide. Most CDFA™ clients come from a marriage where their joint income is $150,000 or greater and their total assets exceed $500,000. Some of these couples have no debt while others have substantial debt. Clients will come from a variety of financial backgrounds.
 
The CDFA™  offers vital information to help clients and their attorneys look at all of these issues, and to be able to prepare an analysis that a client and his/her attorney can use in negotiations or in court when the CDFA™ testifies as an expert witness in litigated cases.  To be effective as a CDFA™, one must look at both sides of the picture and provide a recommendation that is fair and equitable to both parties, which is why hiring a CDFA™ for a negotiation using an alternative dispute resolution process is helpful. There, the CDFA™ serves as the financial expert on the team. The CDFA’s primary role is to compile financial data and work with the team to create a financial settlement that best meets the needs of the family.

What A CDFA™ Is Not

A Certified Divorce Financial Analyst™ is not:

• An Attorney: The CDFA™ cannot provide legal advice. The CDFA’s role is to partner   with the attorney on financial issues related to the divorce – not to replace the  attorney.

• The  CDFA™ should always recommend, if not require, that any client should hire legal counsel. It is critical that they seek their own legal counsel to ensure their interests are properly represented.

• A Business Appraiser: The CDFA™ is not qualified to conduct a business appraisal.  They may work with the business appraiser to collect data required to prepare the appraisal and use the appraised value in their analysis. Only a trained appraiser can value a business.

• A Pension Valuator: A CDFA™ has the knowledge to prepare pension estimates, but to  prepare a true pension valuation requires the use of an actuary.

• An Actuary: A CDFA™ needs to understand many actuarial concepts and how to use   actuarial tables. But the CDFA™ designation does not make one an actuary.

• A CPA/Tax Preparer: A CDFA™ reviews many tax issues related to the client’s financial situation, but the CDFA™ designation does not make one a CPA or tax preparer unless they are designated a CPA.

• A Mediator: Most states require specific training and experience to be qualified as a  divorce or family-law mediator. A CDFA™ may; however, be hired by the divorcing  couple to serve as a financial expert in the mediation process.

CDFAs: Working as Neutral Financial experts

The CDFA™ can play a valuable role in alternate methods of dispute resolution. In most methods of alternative dispute resolution, the CDFA™ partners with the client and the attorney to:

• Compile financial data such as assets, liabilities, income, expenses, taxes, and budget   information

• Prepare projections of proposed financial settlements, showing the short and long-term  effect on both parties

• Present financial data and projected settlement options at the mediation or arbitration  session

• Prepare and present additional options as a result of the mediation or arbitration sessions

There are many different roles a CDFA™ can play in your case as a neutral
financial expert:

• Strategist/Litigation Support

• Financial Expert

• Data Collector/Budget Preparer

• Client Expectations Manager

• Evidence Presenter

Not only will the CDFA™ be a member of the team, but he/she will be a critical member of that team. At any point in the process, a CDFA™ may play any one or all of the above roles depending on when he/she gets involved in the divorce process. 

For specific questions on this article or Divorce Planning, Investment Management, Life & Disability Insurance, Tax/Estate Planning, Philanthropy, and/or other financial topics, contact:

Frank Fantozzi at (440)740-0130.
You may also e-mail him at Frank@PlannedFinancial.com.
Frank is a requested lecturer and is the President of Planned Financial Services and
401(K) Plus. 
www.PlannedFinancial.com

[1] Founded in 1993 to provide specialized training to accounting, financial and legal professionals in the field of pre-divorce financial planning, the IDFA™ provides comprehensive and ongoing training using a variety of knowledge and skill building techniques