How a Certified Divorce Financial Analyst can help you divide assets in Divorce
A Certified Divorce Financial Analyst is an important member of your team of professionals that will help you navigate your divorce. A CDFA is your “financial coach” and will help you with the financial end of things.
One of the first steps is to work with a client and lawyer to prepare an asset list separating the wife, husbands and their joint property. Property includes everything that was acquired (except by gift or inheritance) between the date of marriage and the date of separation or valuation date.
Likewise, the debts are listed.
Generally clients will have options of how the family’s assets and liabilities will be divided as the individuals prepare to go their separate ways. At this point clients need to think about their expenses going forward and project their cash flow (how much money will they have coming in and how much will they need to cover fixed and discretionary expenses). A CDFA can help prepare budgets and provide education around this stage of planning.
Tax consequences need to be taken in to account when considering the different assets. For instance, $100,000 RSP does not equal $100,000 in cash savings or equity in the family home. The RSP is taxed when the money is withdrawn and therefore not as valuable as the $100,000 cash. Pensions, particularly Defined Benefit pension plans can be complicated and need to be valued by a professional trained in that field.
The most common question I hear is – “Should I keep the family home?”
There are financial and emotional issues involved in this discussion. A CDFA is not emotionally attached and can therefore provide unbiased financial advice. This particular question cannot be answered in isolation. A detailed financial plan will need to be prepared to consider the short term as well as the long term consequences of this decision. A recent case I dealt with the wife wanted to keep the family home and was prepared to leave the RSP’s in the husband’s name. She was emotionally attached to the home and didn’t want to move the children to a new home. When I ran the numbers she was fine during her working life but was going to be in a terrible financial situation when she retired. When we looked at the long term effect of her taking half of the RSP’s and half of the equity in the home (moving to a different, smaller home) she was much better off financially. A CDFA will never tell a client what to do– in this case I explained the consequences of her keeping the home and no RSP’s. She really did want to keep the home so I re-ran the plan and included a monthly savings component for the rest of her working life. I showed her what it would take to make this option viable.
It’s difficult to make big decisions when your life is changing but a CDFA can help. A CDFA will show how these decisions will impact you over the next few months, and more importantly, over the rest of your life.
CDFA, CFP, CLU