Certified Divorce Financial Analysts (CDFA’s) are financial professionals trained in the complexities of divorce finances. Their job is to help divorcing couples split assets fairly and establish a sound financial plan for the future. Already trained as accountants, investment advisers, or financial planners, CDFA’s receive specialized training to help divorce clients gather necessary financial information and develop financial projections based on different scenarios for dividing assets. Spouses, attorneys, and the divorce judge all review their projections. All assets and income – including salaries, health benefits, retirement plans, stock options, alimony, child support, living expenses, and tax implications – are factored into the financial models.

The participation of a financial specialist can benefit both lawyers and their clients. While the CDFA wades through the financial morass of a divorce, the attorney is free to focus on other legal issues. Using a qualified financial professional also relieves the attorney of sole responsibility for proposing settlements or explaining financial details for wish he or she may not be fully trained. The use of a CDFA is considered appropriate for any divorcing couple with a net worth of at least $250,000.

A CDFA can navigate an attorney and client through many common financial pitfalls in structuring divorce settlements, which include:

Believing the myth: A 50/50 split of property is the same as a fair division of property. Each spouse receiving the same dollar amount of dissimilar assets is rarely an equitable settlement. Amounts paid for the house, the investments, or the business and its improvements (basis) affect the tax impact of the asset if it is sold. If a certain asset generates income, the income on that asset may be taxed differently than income or gains on another asset of equal value. The timing of the asset sale or future receipt of income will also affect the present value of the transaction (the value in today’s dollars). During a settlement, it is important to compare apples to apples. Without knowing the basis of each asset and its tax impact, an apples to apples comparison is not possible, so net dollars received could be less than anticipated.

Not insuring alimony and/or child support. A client’s ability to collect alimony and child support after the divorce is only as good as the ex-spouse’s ability to pay. If the unexpected happens (death or disability), there are several methods of insuring alimony and child support, but these aspects must be explored and addressed BEFORE the unexpected occurs.

Not taking into account all retirement plan considerations. Retirement plans, whether they are pension plans offering a monthly benefit, or defined contribution plans such as 401(k)’s or 403(b)’s, must be valued and evaluated under the plan’s vesting and eligibility rules. Each plan can have both federal and employer rules governing its division and distribution options. In addition, many plans have very specific guidelines regarding what language will be accepted in the Qualified Domestic Relations Order (QDRO). It is important to obtain this information and explore the ramifications before the settlement is finalized.

Believing another myth: Spending retirement assets before age 59 1/2 will always result in a 10% IRS penalty. There are specific IRS rules allowing the withdrawal of certain monies coming from a qualified retirement plan to the non-employee spouse, without incurring the 10% penalty, even if this person is under the age of 59 1/2. However, it is critical to understand the rules and follow them exactly.

Deciding financial issues one at a time instead of understanding how they affect each other. By looking at each asset or source of income separately, one may overlook the interaction of taxes, capital gains, investment losses, timing issues, inflation, and other aspects of the full financial picture. A truly equitable settlement can only be achieved by taking a comprehensive view of a client’s finances and then determining suitable courses of action.

The Institute for Divorce Financial Analysts is dedicated to the long-term financial future of families going through a divorce. The organization was founded in 1993 and currently has 1,500 members across the country.