What is a CDFA and How Can They Help Me in My Divorce?
By Jennifer Segura
Founded in 1993, 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. Those who take the IDFA training become certified as divorce financial analysts, hence the CDFA designation (Certified Divorce Financial Analysts).
The professional background required to take the training is either finance-related or law related. Many CDFA’s will have former (or current) professional lives as CPA’s or CFP’s. For San Diego Family Mediation Center, we have chosen to require all of our mediators to take this training once they are able (you must have a certain number of years in practice before becoming eligible for the training). Regardless to whether our mediators actively practice as a CDFA, as CDFA’s ourselves (myself and my business partner, as owners of the company), we know first-hand how vitally important it is to have this training and education if you plan to help clients through the complex world of divorce finances. As your mediator, we cannot wear more than one professional “hat” at a time, but knowing to know when a CDFA should be included in the discussion is something we would not have understood without the education. Lucky for us, we now have a fantastic in-house CDFA for all of your financial needs!
The role of the CDFA is to help the client, and their mediator (and possibly, their consulting lawyer) understand how the financial decisions made today will impact the client’s financial future, based on certain assumptions.
A CDFA also:
- Provides the client and mediator with data that shows the economic effect of any given divorce settlement.
- May appears as an expert witness if the case should go to court or in mediation or arbitration proceedings.
- Is familiar with tax issues that apply to divorce.
- Has background knowledge of the legal issues in divorce.
Before the case is even filed, the CDFA can help the client determine their actual financial needs. They can discuss ways for them to meet those needs, both within the settlement and outside of the agreement.
Obviously, a CDFA will be called upon to review and provide input regarding investment data, retirement plans, benefit programs, business records, tax returns, and all other financial data.
Data Collector/Budget Preparer
This is a crucial support role, which involves helping the client and their mediator assembles all the necessary materials, prepare financial statements, and set out pre- and post-divorce budgets.
Client Expectations Manager
This is one of the CDFA’s most essential roles. Many clients need a reality check because they persist in clinging to pie-in-the-sky wish lists.
The CDFA is frequently asked to present evidence showing the financial impact of different settlement options or to explain the intricacies of tax, investment, or retirement plan issues. These presentations can be given to your clients and their mediators, the other spouse and his/her lawyer, or mediator, an arbitrator, or a judge, if the case goes to court.
For most clients, the Number One issue is maintaining positive cash flow – in other words, paying the bills on a monthly basis. To meet cash-flow needs, three primary sources of money may be available to them as a result of divorce:
1) Marital or family property
2) Spousal support
3) Child support
For all practical purposes, spousal support, alimony, and maintenance mean the same thing: they are used interchangeably. Simply put, spousal support is a series of payments from one spouse to the other, or to a third party on behalf of the recipient spouse.
Courts used to award spousal support based on “fault,” which may still be a factor in some states but are not a factor in California. California is known as a “no-fault” state. Clients are often very uneducated on how spousal support is calculated. Spousal support is generally based on many different factors, including:
- Ability to pay
- Length of marriage
- Previous lifestyle
- Age and health of both parties.
Moreover, no two divorcing couples have identical circumstances. So when we have clients come in and say, “Well…my sister receives $10,000 a month, why am I only receiving $2,000,” we know we have to re-educate the client that each couple is very different from very different circumstances. The standard is to give support to the spouse who needs it to keep the family on an equal setting. However, there is an underlying duty for each spouse to work towards being independent of each other. Lifetime support is a thing of the past. This can be a harsh realization for some clients, and often is an excellent time to schedule our client with Heather, our CDFA, so she can help educate the client on how the court views support.
All states have child support guidelines, which help the courts decide the amount of child support to be paid. The courts in each state have the power to deviate from the child support guidelines (award a different amount). The state statutes set out the acceptable deviations. The parents can also agree to a different amount provided that the court approves the agreement.
Some child-support guideline formulas are based on the ratio of each parent’s income as well as the percentage of time the child spends with each parent and takes into consideration the amount of spousal support paid to the custodial parent. The rule of thumb with this type of formula is: as spousal support increases, child support decreases. Unfortunately, the amount of child support paid is often less than the actual amount required to meet the needs of growing children.
Child-support payments cannot be deducted by the payor and are not included in the income of the recipient.
The child support formula does NOT take into consideration the child’s actual expenses. For example, extra-curricular activities, private school tuition, and college funding are not factored into the formula.
A CDFA can help clients determine what costs may not be addressed by the formula, and then help them find alternative solutions to cover expenditures. The point is: if child support is not going to cover all of your children’s needs, you need to know what will.
Property division may be straightforward in some cases and very involved in others. Some of the basics concerning the property are that there are two kinds of property: Marital and Separate. Anything that is marital will go into the marital pie that’s going to be equitably divided; anything that’s separate property will not. The distinction between the two, like spousal support, is another gray area and should be discussed with your divorce team. Whether or not the marital property will be a source of income to each spouse will vary widely between clients.
As you can start to see, divorce can have a tremendous impact on your overall financial health. There are numerous topics not covered in this blog. Still, I wanted to give you an idea of how CDFA’s can be so beneficial to your overall settlement. Also, I wanted to assure you that the mediators at SDFMC have the knowledge and resources to make sure your final agreement has been well thought through. When necessary, we have our very own CDFA that can meet with you before or after your appointment with your mediator, to help you understand the big picture.
If you would like to schedule a time to speak with one of our mediators or Heather Steer, our CDFA, please contact San Diego Family Mediation Center at 858-736-2411 today!