There are many designations for a financial expert, including financial planner, Certified Financial Planner (CFP®), Chartered Financial Consultant (ChFC), Certified Public Accountant (CPA), accountant, and Certified Divorce Financial Analyst® (CDFA).
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. After determining the client’s goals, the next step is to take an inventory of current assets and liabilities. The planner then looks at what needs to be done to achieve the client’s goals. These goals can be from one year to 50 years in the future. To look that far into the future, certain assumptions need to be made. Assumptions include income, expenses, inflation rates, interest rates, and rates of return on investments. The assumptions need to be reviewed on a regular basis. If during the review process the planner determines that the client is not on track, the planner will then make recommendations as to what changes need to be made to get back on track. 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 his or her 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 further 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.”
To best meet the needs of divorcing clients, you need a blend of these two ideologies. The CDFA® professional designation was created to fill this need. The role of the CDFA® professional is to assist the client and his or her attorney to understand how the financial decisions he or she makes today will impact the client’s financial future based on certain assumptions.
A CDFA® professional is someone who comes from a financial planning, accounting, or legal background and goes through an intensive training program to become skilled at analyzing and providing expertise on the financial issues of divorce.
The CDFA® professional:
- Becomes part of the divorce team and provides litigation support for the attorney and client on financial issues such as:
- Understanding the short-term and long-term effects of dividing property.
- Understanding tax issues.
- 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 the client can afford the marital home, and if not, what he or she can afford.
- Evaluating the insurance needs of the client and determining if the client qualifies for COBRA.
- Determining earning capabilities.
- Establishing assumptions for projecting inflation and rates of return.
- Brings an innovative and creative approach to settling cases.
- Provides the client and attorney with data that shows the financial effect of any given divorce settlement.
- Appears as an expert witness in court or in mediation or arbitration proceedings.
- Is knowledgeable about specific tax laws that apply to divorcing couples.
- Has knowledge about the legal issues in divorce.
- Is trained to interview clients to:
- Collect financial and expense data.
- Help them identify their future financial goals.
- Develop a budget.
- Set retirement objectives.
- Determine how much risk they are willing to take with their investments.
- Identify what kind of lifestyle they want.
- Determine what kind of education they want for their children.
Reprinted with permission from THE INSTITUTE FOR DIVORCE FINANCIAL ANALYSTS™. www.institutedfa.com
Andrea L. Blackwelder, CFP®, ChFC and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with Wisdom Wealth Strategies.