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We educate you regarding your circumstances, help you negotiate a fair settlement and along the way provide clarity regarding the impact of all the financial decisions you will be making.
No, we always work with attorneys. Divorce is a legal process that requires legal expertise. Our team specializes in the financial aspects of divorce.
Divorce is an extremely specialized and complex field when it comes to finances. Unless your other advisors have dedicated their careers to this specialty, they probably will not be equipped to meet your needs.
The earlier the better. Once you have chosen a particular divorce process, you may find your options are severely limited.
In California, there is a mandatory 6-month waiting period between the date of filing and the date the divorce can be final. In litigation, access to the court system can delay the process significantly. Alternative Dispute Resolution allows the couple to control the timing.
- Retaining an attorney and embarking on a litigated course before considering other options.
- Failing to understand the impact of settlement on future lifestyle.
Regarding co-parenting issues, many couples can save time and money by working together.
However, when it comes to the finances, we have found that when clients have set ideas of how their settlement should look it can actually be counter-productive. A lack of flexibility can create avoidable problems, further increasing animosity and expense. Do you both fully understand your family’s finances and the long-term impact of what you are agreeing to? Receiving the input from a Certified Financial Divorce Consultant allows you to make informed decisions leading to more durable agreements.
The Institute for Divorce Financial Analysts (IDFA™) is the premier national organization dedicated to the certification, education and promotion of the use of financial professionals in the divorce arena. The IDFA provides specialized training to accounting, financial, and legal professionals in the field of pre-divorce financial planning.
Many people make financial mistakes during divorce that they must live with for years to come. During such a traumatic and emotional time, it can be hard for divorcing couples to see how financial issues will play out over time. Sometimes, partners in a divorce may not even fully understand what they’ve agreed to. Worse still, divorce settlements can be very tough to change once they’ve been signed and filed in court. As a result, an increasing number of divorcing couples are turning to certified divorce financial analysts for help.
A CDFA is an expert in the unique financial circumstances that surround a divorce. The professional training for the certification is focused on understanding and estimating the long-term costs of a divorce, because divorce settlements can impact a person’s financial picture for a very long time.
Areas of expertise include:
- Tax consequences of divorce agreements
- The process of dividing and valuing property fairly
- Determining how much alimony and/or child support is appropriate and for how long
- Modeling the future values of retirement and pension funds
Arguably, the greatest value a CDFA provides is an educated outlook toward the future. What seems equitable today may not look so fair when projected into the future, especially after factoring in considerations like inflation, cost of living adjustments, changes in custody agreements and other issues. A CDFA uses unique software programs and solid financial expertise to ensure that today’s split of assets and cash flow will still be fair and equitable for years to come.
Doesn’t a Lawyer Do That?
When a couple decides to divorce, the first step they usually take is to hire a lawyer. In many states, divorce lawyers often handle every aspect of a couple’s divorce, including decisions on how to split assets. However, a lawyer is trained in law, not finance. During the process of legal negotiations, proposals go back and forth between divorcing parties. It isn’t long before the financial consequences of all these different proposals can get lost in the shuffle. A CDFA can help to ensure that each party’s finances are protected.
However, a CDFA is never a substitute for a good divorce lawyer. Rather, CDFAs work closely with divorce lawyers to facilitate good settlements. Usually, a CDFA can save divorcing couples time and money by quickly deciphering the financial outcomes of legal settlements, thereby helping clients make sensible decisions quickly. Because CDFAs usually charge lower fees than a lawyer, it often makes good economic sense to keep a lawyer focused on the law and let a CDFA analyze the finances.
It is usually best for the divorce attorney to hire the CDFA rather than a direct hire by the divorcing couple. If a CDFA is hired by the attorney, the client-attorney privilege is preserved; if divorcing couples hire a CDFA directly, anything they say or give to that CDFA is admissible in court, which might not always serve in their best interests.
Although some individuals choose to build a practice based solely on the CDFA designation, it is more typical for professionals to instead add the CDFA designation to their other credentials. Consequently, many CDFAs are also certified financial planners (CFP), divorce mediators, or even lawyers. In this way, the CDFA expands a financial professional’s skill set.
- Retaining an attorney before you have examined all your process options
- Deciding financial issues piecemeal rather than looking at the whole picture before choosing
- Assuming that an equal division is a fair division of property
- Not understanding the impact of settlement options on your financial future
- Underestimating your post-divorce expenses
- Allowing an emotional attachment to an asset (e.g. the family home or a pension) to dictate the outcome
- Not understanding the value of non-cash assets such as stock options and employee benefits
- Failing to accurately value a pension
- Failing to insure support payments
- Failing to understand liability issues related to debt incurred during the marriage
In most cases, one of the parties will purchase the other’s interest and continue on managing the company. This process should always, if nothing else, include hiring the expertise of a business appraiser to value the business. This appraisal will be used to determine how much cash or value in assets must be exchanged in order to buy-out the spouse exiting the business. Anytime a business is involved in the divorce process, it is important to keep in mind that the process of valuing a business is considered more of an art than a science. If you were to hire two business valuation experts, you are almost guaranteed to receive two different valuations in return. As a result, we encourage clients to remain flexible when negotiating a buy-out settlement. In all likelihood, a business valuation 12-months after the settlement date will provide a very different picture, whether good or bad.
However, only you and/or your business partner(s) are fully aware of not only the current cash flow, but also any future potential cash flow that may be necessary in correctly valuing the business. You must be aware of the on-going business practices to ensure you get what is rightfully yours.
All too often we hear about cases where one party feels they were left short changed. Take for example, the McCourt family in Los Angeles. During their divorce, the McCourt’s were the majority owners in the Los Angeles Dodgers Major League Baseball team. When the settlement was awarded in 2011, the wife, Jamie McCourt, was awarded $131,000,000 in cash and several pieces of real estate. The husband, Frank McCourt, retained interest in the Dodgers together with the stadium and surrounding parking lots. Shortly after the divorce settlement was reach, Frank sold his portion of the family business (LA Dodgers) for $2,000,000,000. Needless to say, Jamie was not pleased with this result and later contended that Frank intentionally misled her about the value of the family business.
The biggest complication in this case came from the valuation of the Los Angeles Dodgers and their ongoing business deals. At the time of the settlement, the team had listed $1,000,000,000 in assets and $500,000,000 in debt. On the surface, Jamie should be very pleased with her original settlement, as it is unlikely she would have come out with $131,000,000+ after taxes and fees. What was not accounted for in the bankruptcy filings; however, was the potential future value of the broadcast rights.
In a later court decision, they disagreed with Jamie’s request to throw out the initial settlement, stating that, paraphrased, ““Jamie McCourt had the information, knowledge, experience and evidence that the value of the Dodger assets was greater than what she indicated in her moving papers which she relied upon in entering into the settlement of this matter. Further, there is no credible evidence that Frank McCourt misrepresented the valuation to her in this case.”
Here are a few questions that Jamie, and others like her, should be sure to ask before signing on the dotted line of the settlement:
- How would you feel if the family business sold for significantly more than the agreed upon amount in the future?
- Could you foresee yourself regretting this decision?
- Is the settlement enough money to support your lifestyle moving forward and through retirement?
- Is that a relevant question?
- Lastly, always try to evaluate the costs, both financially and emotionally, of making this decision.
1. Home Insurance:
a. Rental Property – It is common in divorce for one spouse to move out of the home, often into an apartment unit as a temporary residence. It is important that a renter’s insurance policy is obtained to ensure coverage over all persona property within the rented home. This will also prevent against any negligence claims.
b. Primary – Although one spouse may have moved out, it is recommended that both spouses remain on the primary home policy until a final decree has been issued. Once a final decree has been issued, and assets have been divided, there are two common ways in which the primary property is handled.
i. If per the decree, it is decided that one spouse will remain in the primary residence, it is extremely important that the house is refinanced in their name ONLY and that the title to the house is updated to their name as well. This is most important to the other spouse to ensure that they are not liable for any future payments due on this property
ii. If per the decree, it is decided that the house will be sold, the proceeds from the sale of the house will be divided according to the decree.
2. Car Insurance: If the two parties are able to handle the divorce process amicably, it is recommended to leave auto insurance policies in place as is to receive the lowest, multi-vehicle, rate. If the two parties are unable to handle the process amicably, it is recommended both spouses obtain separate insurance policies on their respective vehicles. Regardless of the circumstances, once the decree has been finalized, both parties should obtain separate insurance policies on their respective vehicles. Similar to real estate, it is important to confirm each spouses name has been removed from the other policies to avoid any future obligations.
3. Life Insurance: This is one of the most important, and often overlooked, details during the divorce process. In the unfortunate situation where the payor of support were to pass away, without a life insurance policy on their life, the payee spouse and family would be left with zero support. A life insurance policy should always be put in place on the life of the payor until support is no longer required, at which point the insurance policies should end.
Taxes, Hidden Assets & Divorce
The Impact of Divorce on Children
Divorce 101 (and Finances)
Divorce can be an overwhelming experience both physically and emotionally. Despite your best efforts, you may feel that the circumstances and decisions made are out of your control. While this may be true for certain aspects of divorce, there are certain things that you can control. Maintaining accurate, organized and updated copies of financial documents can help accomplish this. Here are five tips on how to best stay prepared:
1. Get the details first
• Collect every piece of financial paperwork make two copies of everything before returning the paperwork to where you found it.
• Gathering complete documentation records will help build an accurate picture of the marital estate and assist in making educated, well-informed decisions.
2. Prepare accurate financial statements to help prepare your attorney including:
• Schedule of Assets and Debts – also known as a Net Worth Statement
• Income and Expense Schedule
• Include as much documentation and supplemental information as possible
Accurate schedules are the most important financial documents during preparation stages. Complete and accurate forms will allow you to negotiate from a position of strength and help you weigh your options when developing your best alternatives for settlement.
3. Have all information available and easily accessible throughout the process.
Missing information or documentation is one of the most common causes for delays and canceled settlement conferences. Both will cost you more money in attorney and expert fees when subpoenas, interrogatories and repeated formal requests for documents are required.
4. Keep your schedules and documentation updated during the process.
This will insure accurate information is available when you are weighing your options on the courthouse steps and avoid expensive 11th hour document preparation when exchange of documents is required.
5. Keep a record of EVERYTHING.
Track everything from day one including community expenses you pay, cash given to your spouse, bank statements, receipts for major purchases, etc. Credits and Reimbursements are important and often valuable financial tools in your negotiations.
Transmutation is the legal analysis of property transfers. Typically this relates to the conversion of property from one character to another, Community Property to Separate Property or the other way around. The court must analyze, trace and determine if there was a transfer and what was transferred. Quit Claim transfer deeds on real estate title are among the most common transmutations and can lead to unintended consequences.
Why is transmutation important?
Parties often make decisions (e.g. buying a house using funds from only one party) without understanding the potential impact. How the parties transfer the property could benefit one and harm the other if not handled properly.
Automatic Temporary Restraining Orders (ATRO’s) accompany a Petition for Dissolution of Marriage and are printed on the back of the Summons (FL-110). These restraining orders prohibit the disposal of property by any methodology. They are effective on the Petitioner as soon as the Petition for Dissolution is filed and the Respondent when the Petition is served on them and remain in effect until the Petition is dismissed, a judgment is entered or the court makes further orders. The orders restrict a party from:
- Removing a minor child from the state;
- Cashing, borrowing against, canceling, transferring, disposing of or changing beneficiaries on life, health and other insurance;
- Transferring, encumbering, hypothecating, concealing or in any way disposing of any property;
- Creating a non-probate transfer during dissolution proceedings without the consent of the other party or an order of the court.
Why are ATRO’s important?
Automatic Temporary Restraining Orders are important because they provide a broad freeze on all assets held by either party. This is intended to prevent parties from hiding or disposing of their assets, which is a common reaction after divorce filings. Further, ATRO’s will make the job of tracing assets easier as transactions post separation will be limited.
An MSA, or Marital Settlement Agreement, spells out the terms of the divorce between the parties involved. An MSA will generally cover property division, spousal support, child support, child custody, asset division and other issues related to the parties divorce.
Why is an MSA important?
An MSA is important because it is used not only to determine how to divide the current household, but also as reference for any new issues that may arise in the future. An MSA provides clear evidence that the marriage has been dissolved and additionally provides verbiage for the future governance of your relationship.
Grey Divorce (and Finances)
Are you considering a Gray Divorce?
It has become more and more common for couples over the age of 50 to find themselves filing for divorce.
The good news? Research shows, “older, divorced Americans find themselves happier and emotionally better off…so long as the financial challenges of a gray divorce are mitigated.” Make the transition a positive experience by educating yourself appropriately.
Catherine J. Byerly of Divorce Magazine has some financial tips to consider when preparing for the next phase of your life:
What is Long Term Care Insurance?
Long Term Care (LTC) Insurance is a relatively new form of health insurance designed specifically for long term care in a nursing home, home based health care and other expenses not covered by Medicare, Medicaid and traditional Medicare Supplemental insurance.
Long Term Care Insurance is purchased from one of many insurance companies offering coverage in your state. Generally policies provide a daily maximum benefit amount for a specified period of time. Ultimately this provides a benefit pool from which future benefits will be drawn. At $200 per day for 1,080 days (3 years) you would receive a total benefit pool of $216,000. If you draw less than the $200 per day maximum, your benefits will last longer. Policies come with a myriad of options and choices outside the scope of this article such as daily benefit amounts, benefit periods, elimination periods and cost of living adjustments. These choices should be made with the assistance of an expert in the available products.
In order to qualify for benefits a person, generally, must need help completing at least two activities that are necessary for daily functioning, such as:
- Personal hygiene and grooming
- Feeding oneself
- Dressing and undressing
- Functional transfers like getting out of bed
- Voluntarily controlling urination and bowel movements
OR need substantial supervision to protect the individual from harm due to cognitive impairment.
Why do you need it after a Gray Divorce?
Any friend or family member who has ever played the role of caregiver knows how physically demanding and emotionally taxing it can be.
Long Term Care insurance will pay for a skilled nurse or caregiver to come visit a home and provide in-home care up to 24 hours a day. The caregiver might cook meals, clean the house or just offer assistance with bathing and other daily activities to avoid accidents and insure quality of life is not compromised. Most importantly, it will provide peace of mind to those who care most about your health
We feel obtaining Long Term Care Insurance is one of the most important financial planning decisions to be addressed in post-divorce planning for a newly single person in their 50’s or 60’s. This age range is considered to be the ideal time from a cost benefit perspective to purchase coverage and the loss of the built-in caregiver should be the catalyst to motivate.