Divorce is a significant life event that brings emotional, legal and financial challenges. Among the emotional turmoil, it’s essential to address the financial aspects of your separation objectively.

That’s where a divorce financial advisor comes into play. In this article, we’ll dive into the crucial role these professionals play during a divorce, the services they offer and the type of clients who can benefit from their expertise.

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What is a divorce financial advisor?

A divorce financial advisor helps you develop a financial plan during and after a divorce. They tailor the services of a traditional financial advisor — such as investment management, tax planning and budgeting — to clients filing for a divorce.

Some advisors hold a professional designation as a certified divorce financial analyst (CDFA), which is appointed by the Institute for Divorce Financial Analysts.

A CDFA designation means these financial advisors can help you navigate issues, such as:

  • Identifying the short-term and long-term effects of dividing property.
  • Tax implications.
  • Analyzing retirement plans and pensions.
  • Determining if you can afford the matrimonial home.
  • Evaluating insurance needs.

A CDFA is not a divorce lawyer and therefore can’t provide legal advice. However, they can become part of your divorce team, providing litigation support for both you and your attorney.

A CDFA can also help with the legal discovery phase, preparing your financial affidavit and creating a marital net worth balance sheet.

Post-divorce, an advisor can help you make a new financial plan. They can help you establish a budget as a single person and provide guidance on how to protect your credit score.

The cost of a certified divorce financial analyst is about $300 an hour, or an average of $3,000 to $6,000 per case, according to the Center for Divorce Financial Planning.

Role of a divorce financial advisor

The primary role of a divorce financial advisor is to provide expert insight into how a divorce may impact your finances, and help you chart a post-divorce plan.

Lawyers are legal experts, not financial experts. While some lawyers are well-versed in money matters, a divorce financial planner can crunch the numbers to determine any given divorce settlement’s impact on your bottom line.

A divorce financial advisor can also:

  • Appear as an expert witness if the case goes to court, or in mediation or arbitration proceedings.
  • Collect financial data.
  • Help you identify your future financial goals.
  • Develop a budget.
  • Set retirement goals.
  • Determine how much risk you’re willing to take with your investments.
  • Determine the costs of your children’s education.

By conducting a thorough analysis of all accounts, investments and properties, a divorce advisor ensures a level playing field, helping you avoid costly mistakes when splitting assets.

For example, a couple may decide to divide retirement accounts down the middle, which sounds equitable enough. But if one person receives assets from a traditional IRA and one person receives assets from a Roth IRA, the person who receives the traditional IRA will face a tax bill when it comes time to withdraw funds in retirement, while the person who receives a Roth IRA will enjoy tax-free withdrawals.

A lawyer may not take this into consideration during the settlement process, but a divorce financial advisor can analyze long-term financial implications like this before the separation is finalized.

Who needs a divorce financial advisor?

If a couple has significant assets, hiring a divorce financial advisor can be a good idea. It can also be beneficial if one person is less informed about household finances and assets than the other.

You may also benefit from hiring a divorce financial planner if you’re navigating complex situations, such as:

  • One or both of you owns a business.
  • One or both of you own significant real estate holdings or other investments.
  • You need help managing the division of retirement accounts or pensions.
  • One side is seeking alimony or child support

For example, if a spouse owns a business, a financial advisor can analyze cash flow, inventory and business valuations to ensure a fair settlement and prevent any attempts at hiding income.

However, if you and your soon-to-be ex-spouse have few assets, minimal debts and you are both in general agreement about how things should be split, you probably don’t need a divorce financial advisor.

How to find a divorce financial advisor

You can begin your search for a financial advisor online. Once you’ve identified potential candidates, set up initial consultations. During this meeting, you’ll have the opportunity to gauge the financial advisor’s expertise and ask them questions.

Some possible questions to ask during the initial consultation include:

  • Have you dealt with cases similar to mine?
  • What’s your preferred method of communication and how often will we communicate?
  • What is your approach to collaborating with divorce attorneys?
  • Can you walk me through a case where you helped a client achieve a favorable outcome?
  • Can you explain your fee structure in detail?
  • What financial services do you provide after the divorce?

If you’re interested in working with a certified divorce financial analyst, you can use the search tool on the Institute for Divorce Financial Analysts’ website to find one in your area. You can also check out the Association of Divorce Financial Planners, an organization for financial professionals specializing in divorce.

Financial planning tips for divorce

Getting divorced comes with unique financial challenges. Beyond hiring a divorce financial advisor, here are some other money matters to consider.

  1. Creating a financial checklist: Establishing a comprehensive checklist can keep you focused on necessary financial tasks, such as updating legal documents, creating a new budget and monitoring credit reports.
  2. Beneficiary designations: You’ll need to review and update beneficiary designations on life insurance policies, retirement accounts and bank accounts. This ensures the right people receive the benefits after you pass away.
  3. Canceling joint accounts and credit cards: Closing joint bank accounts and credit cards is essential to protect both parties from potential disputes and unauthorized transactions.
  4. Evaluating health insurance: If you were covered under your spouse’s plan, you’ll need to secure alternative coverage through an employer, private plan or the federal government’s Health Insurance Marketplace.

Aside from your lawyer and a financial advisor, you might also consider consulting with other professionals during the divorce process, including a certified public accountant or an estate planning attorney.

Bottom line

Assembling a reliable team of professionals is pivotal during a divorce. Adding a financial advisor to your team can help you navigate complex financial issues more easily, especially for high net-worth couples.

From analyzing the financial impacts of various settlement outcomes to helping you draft a post-divorce budget, a financial advisor can serve as a key ally during an emotional draining time.