Frequently Asked Questions
How does the CDFA's role differ from that of other financial professionals?
There are many designations for a financial expert, including: financial planner, Certified Financial Planner™ (CFP®), Chartered Financial Consultant (ChFC®), Certified Public Accountant (CPA), Chartered Accountant (CA), Certified General Accountant (CGA), 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 and then the planner 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 their stated goals and objectives.
Conversely, an accountant 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 designation was created to fill this need. The role of the CDFA professional is to assist the client and his/her attorney to understand how the financial decisions he/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 lawyer and client on financial issues such as:
- The short-term and long-term effects of dividing property;
- The 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/she can afford;
- Evaluating the insurance needs of the client, and determining if the client qualifies for COBRA;
- Determining earning capabilities; and
- Establishing assumptions for projecting inflation and rates of return.
- Brings an innovative and creative approach to settling cases.
- Provides the client and lawyer 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; and
- Determine what kind of education they want for their children.
How do CDFA professionals fit into the divorce process?
A CDFA professional needs to be flexible. There are many different roles they will play in their work with lawyers:
- Strategist/Litigation Support
- Financial Expert
- Data Collector/Budget Preparer
- Client Expectations Manager
- Evidence Presenter
Not only will a CDFA professional be a member of the team, but he/she will be a critical member of that team. At any point in the process, they may play any one or all of the roles depending on when they get involved in the divorce process.
- Strategist/Litigation Support: Before the case is even filed, the CDFA can be used as a strategist in the litigation process. The lawyer needs to know what the financial implications are for different divorce settlements. Once you prepare this analysis, it will give the attorney the ammunition he/she needs to negotiate the most advantageous settlement for your client.
- Financial Expert: In the divorce process, the client and his/her attorney will view you as the financial expert. You will be called on to review and give input on investment data, retirement plans, benefit programs, business records, tax returns, and all other financial data.
- Data Collector/Budget Preparer: A key support role you can play to the client and his/her lawyer is to help them collect data to prepare the financial affidavit and pre and post divorce budgets.
- Client Expectations Manager: This is probably one of the most important roles that a CDFA professional plays in the process. Many clients come in with unrealistic expectations; clients often need a reality check. For instance, there was a case where a woman was getting divorced after 25 years of marriage. The children, two girls, were just about out of college. The woman had expectations that when she became divorced from her husband, who was earning about $95,000 per year, she would essentially be taken care of for the rest of her life. She needed to know, from a financial planner’s perspective, the reality of what was going to happen. Even though her husband earned a significant salary, she did not have a realistic view of what could be expected as a result of the divorce. They did not have very much property, and they had spent almost everything they had earned during the marriage. In addition, she had not worked much outside of the home. It was very important for someone with an extensive financial planning background to give her a realistic expectation of the future.
- Evidence Presenter: In meetings with the client; the client and his/her attorney; the client, spouse and the lawyers; mediation sessions; arbitration hearings or the trial, the CDFA professional is often asked to present evidence to show the financial impact of different settlement options or information related to financial, tax, investment or retirement plan issues.
As you can see, there are many roles that the CDFA professional may play in assisting his/her clients and their attorneys achieve the most advantageous settlement. But to be effective in these roles, the CDFA® must have a strong working knowledge of the financial issues related to divorce.
Does a CDFA replace a lawyer in a divorce case?
A Certified Divorce Financial Analyst is not a lawyer, and he/she cannot provide legal advice. Practicing law without a license is a criminal offense! If you do not have a license to practice law, you may not give legal advice or practice law in any other way. As a CDFA professional, your work should be limited to the financial analysis relating to the divorce – leave the legal interpretation and advising to the lawyers.The role of the CDFA professional is to assist the lawyer with financial issues related to the divorce – not to replace the lawyer. The CDFA should always recommend, if not require, that any client should hire legal counsel. It is critical that clients seek their own legal counsel to ensure their interests are properly represented.
A CDFA professional’s role is to take information provided by the clients and their lawyers, analyze the proposals, and show them the results of the analysis. A CDFA will also show the financial results of different options that are suggested by their clients and/or lawyers.
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