Articles and FAQs
If you have a complex situation or are unfamiliar or uncomfortable with finances many people find it helpful to have an advocate and a translator with a different view than their attorney.
Have you ever been resentful and just wanted to buy shoes you don’t need and can’t afford or maybe it was a big splurge – leasing a fancy car. Do you wonder how you are going to be able to retire, pay for health insurance or understand the brokerage statement that just arrived? What about the tax return you signed but can’t decipher? These are examples of ways a CDFA can help steer you away from bad decisions. The true cost of working with a financial analyst is not in how much they cost hourly (significantly less than attorneys) but in how much they save you by avoiding bad decisions and helping you to make good ones. In terms of specific costs, it is important to remember that each divorce is unique in complexity and duration. Some clients are very sophisticated financially and may not need as much input. Typically a CDFA will request an initial retainer based on an hourly fee. A collaborative case may range from $2500. to $5,000. A litigated case that requires court testimony could be considerably higher. Many cases require limited input regarding the finances and the fee could be much less – likely $1,000 to $2500.
The earlier in the process you meet with a CDFA the better. It is important for the CDFA to understand the whole picture in order to provide the best support. In many cases, the advisor role may be limited in scope depending on the assets and circumstances. In other cases the CDFA may be needed throughout the entire process including testifying at trial if your case cannot be settled.
A Certified Divorce Financial Analyst (CDFA ™) has extensive training in the divorce process. Often, they are also Certified Financial Planners (CFP®) and may have an investment and tax background as well. A CDFA™ works with you and your attorney to look at various financial options you are considering during the divorce process. That way you can determine what is in your best interests in the short and long term. This might include illustrations of property distributions, evaluation of taxes, retirement plans, the adequacy of support and many more financial issues that will impact your future.
What is the difference in taxation between alimony (spousal support) and child support? Does it matter if the support is 'allocated' or 'unallocated'?
Alimony is always federally taxable to the person receiving the payment and deductible to the person making the payment. Child support is never taxable or deductible. But if support is “unallocated” then it is fully taxable to the recipient and fully deductible to the payer. Unallocated payments are a common situation during separation. Often a client is unaware that the support they are receiving is fully taxable since nothing has been formally “allocated’ as child support.
We have assets but they are mostly in my spouse's retirement plans. How can I get my share without paying taxes and penalties?
There are special provisions that allow assets to be transferred from a 401k and similar ERISA plans to an alternate payee (due to divorce) via a legal document called a QDRO (qualified domestic relations order). Typically, your share would be rolled into an IRA for you and current taxation would be avoided. Note: IRAs and ROTH IRAs can also be transferred between spouses but do not require a QDRO.
My husband is a successful executive. I stayed at home, raised the children and supported his career. Now he wants a divorce. What assets are marital?
Generally all assets that were acquired during the marriage are marital no matter who earned the money. This would also apply to debts.
If you are going to be responsible for the mortgage, will you be able to handle the current payments as well as utilities, taxes, insurance etc.? Most likely you will have to refinance the mortgage to remove your spouse’s name from the loan. You should also have a cushion for normal and unexpected maintenance. Are you comfortable with the agreed value of the house? Normally this is based on an appraisal minus 8% for presumed selling costs minus any outstanding mortgage or credit lines. Be sure to take a hard look at the condition of the property. Whenever you do sell, the buyer may require numerous repairs and the cost will fall on you. Consider an inspection report now to uncover foundation or electrical problems etc. and negotiate with your spouse now.