The Institute for Divorce Financial Analysts™ (IDFA™) recently asked its members to share the worst financial mistakes they’ve seen divorce-industry pros make; here’s a taste of what they had to say.

Complied By Diana Shepherd, CDFA™

Tax-Loss Carry-Forwards

Tax losses have value and must be considered for settlement purposes. I had a divorce client who was in the 35% tax bracket (so was her spouse). On their 2010 tax return, they had $230,000 in tax-loss carry-forwards. My client’s lawyer had not noticed the tax-loss or didn’t realize it could be carried forward and be used in the future to offset gains. The husband was probably hoping no one would even notice this and he would have been able to keep and use the entire amount over time. In the client’s settlement negotiations, they could determine if the loss carry-forward would be split or awarded to one spouse. If the loss came from investments that were owned in joint name, then either spouse could take the loss or it could be split up in any fashion. However, if the losses were incurred by investments in single name, the carry-forward must remain with the individual who incurred the loss. If this were the case, they could negotiate to offset this with another asset.

 Donna M. Cheswick (CDFA™) practices in Greensburg, PA.

Corporate Plan QDROs

Corporate plan Qualified Domestic Relation Orders (QRDO) documents may not fully protect the client’s interest, and they may provide inadequate results for the alternate payee. The devil is in the details – and the details left out of a QDRO that may expose lawyers to undue risk and come back to haunt them and their firms. Educate yourself on QDROs and never assume the corporate model covers all bases. Critical areas to address include:

  1. Leverage your CDFA™ professional. There may be a divorce analyst in your area that has a lot of knowledge on the subject.
  2. Review your book of business for any ticking time bombs.
  3. Remember that the standard of care for QDROs today is much higher that it was back in 1984.

Stephen Northington (CFP®, CDFA™) practices in Little Rock, AR.

Social Security Survivor Benefits

For divorcing clients (especially those nearing retirement age), attorneys sometimes overlook Social Security survivor benefits in insuring alimony in the event of the death of payor spouse. At the death of the payor spouse, the recipient (if their marriage lasted 10 years and the recipient is currently unmarried) is eligible for 100% of the payor’s Social Security benefits. This is an increase from the 50% benefit that the recipient would be eligible for at full retirement age during the payor’s lifetime. Taking into account the Social Security survivor benefit could translate into material savings in the life insurance premiums on the payor, as that could reduce the face amount of the life insurance needed to replace the alimony. For elderly clients, this could mean thousands of dollars annually in premiums. Whether you’re representing the payor or the recipient, this could be helpful to consider when calculating and negotiating.

– Sandra Wang (CFP®, ChFC®, CDFA™) practices in Palo Alto, CA.

Spousal Support and the IRS

Specifically, setting alimony with excessive reductions during the first three years of alimony and triggering alimony recapture and/or having alimony decrease or cease too near the time of child(ren)’s emancipation and triggering alimony recharacterization as child support. Both of these situations can easily be circumvented. If the receiving spouse has a need for extra funds during the first three years post-divorce, simply provide those funds as part of the property settlement, not as part of the alimony. Alimony recapture will effectively redefine the excess reductions as a property settlement anyway and reverse the alimony tax treatments of the payments in question. Avoiding alimony recharacterization is also a question of timing. If the IRS recharacterizes the alimony as child support, then the paying spouse will be subject to immediate taxation on the previously deducted payments – likely at a higher tax rate. The receiving spouse will likely have very few options for recovering taxes that the IRS may not have considered due on “alimony” received.

– Rosemary Frank (MBA, CDFA™, CFDP, CFDS) practices in TN, FL, IL, LA, and MO.

Refinancing a Loan

In a divorce, the separation agreement will often itemize which party is assuming responsibility for which debt. Generally speaking, creditors don’t care what the separation or divorce agreement calls for: if a client’s name is on the loan, they will be responsible for paying if the other defaults. In one example, a woman cosigned a student loan for her daughter and a car loan for her son during her marriage. In the divorce agreement, the husband agreed to be responsible for the payment of both of those debts. One year later, two things happened: the husband lost his job and the wife decided she wanted to stop renting and buy a condo. Unfortunately, she learned the two loans counted against her in terms of her debt to credit ratio when applying for a mortgage. Worse, when her husband stopped making payments, the creditors came after her. When one party assumes payment of a debt, every effort should be made to refinance the loan solely in their name. Otherwise, the other party remains liable regardless of what the separation agreement says. If refinancing is not possible, consider setting aside a sum of money that will be released and divided upon satisfaction of the debt.

– Renee Senes (CDFA™) practices in Concord, MA.

Tax-Deductible Divorce Services

Divorcing clients commonly ask the attorney or financial expert if their divorce services are tax-deductible. Usually the answer is no, but there are circumstances where these services may be deductible, making it important for the attorney and financial professional to itemize their billing according to the nature of the services provided. Time spent on financial statement analysis to determine potential cash flows and profitability of a business or the existence of potential tax or other liabilities can be paid and deducted as a legitimate business expense. Analysis of personal or business tax returns that is designed to inform clients about carry-forward losses, current or potential capital gains, suspended losses, recapture, or potential tax liabilities from intentional or unintentional omissions can be billed as accounting-related services and may be treated as a miscellaneous deduction for tax purposes. If you’re unsure about services, itemizing your statements with an eye toward this enables your client to consult with their tax professional. Providing clients with the opportunity to deduct legitimate expenses can increase their satisfaction and add value to your professional services.

– Barbara H. Saylor (CFP®, CDFA™) practices in Columbia, SC and the surrounding areas in central South Carolina.

Life Insurance Policies

In this case, the client prepared her own financial affidavit for her attorney who filed it with the court and gave a copy to opposing counsel. She consulted with me a month after this submission and in reviewing her financial affidavit, what struck me was that the “value” of the life insurance policy was substantially out of line with the rest of the marital assets. A copy of the life insurance policy confirmed my suspicions: the client had not understood her policy and mistakenly submitted the face amount as the cash value. Her attorney had not taken the time to properly review her documents, allowing this blatant error to be submitted to the court and to her husband’s attorney who now wanted 50% of this erroneous asset. She was able to prove the mistake and submit an amended financial affidavit to the court, but it cost her plenty of time, legal fees, and aggravation.

– Lisa C. Decker, CDFA™) practices in the Metro Atlanta, GA.


This article was compiled by Diana Shepherd (CDFA), Marketing Director of the Institute for Divorce Financial Analysts. To learn more about how a Certified Divorce Financial Analyst® can help you and your client address the financial issues of divorce, go to