With the growing popularity of mediation and collaborative divorce, the use of divorce financial professional is becoming common.
By Bryan J. Koslow, Financial Planner
A survey conducted by the Institute for Divorce Financial Analysts™ revealed that the ways assets are divided during divorce proceedings has changed significantly in the past several years. With the decline in home prices and retirement account values, divorcing couples are focusing on distribution of liquid assets more than ever. In other words, the parties want cash rather than stocks, investments, real estate, or retirement plans.
We recently sat on a panel at a Family Attorney CLE event focused on the use of professionals such as Financial Planners, Forensic Accountants, and Mental Health Professionals in Divorce cases. With the growing popularity of Alternative Dispute Resolution such as Mediation and Collaborative Divorce, the use of specially trained professionals is becoming more common. The following list identifies 10 signs that you should consider utilizing a Divorce Financial Professional in your case:
1. Presence of illiquid assets such as real estate properties, business interests, annuities, restricted stock, or stock options. Even if a couple has accumulated significant wealth, illiquid assets can’t be used to pay the bills each month. There are often creative ways to leverage illiquid assets without being forced to liquidate them. Penalties and tax implications should be considered before making decisions.
2. Inequality in the financial knowledge of the parties. In approximately 70% of households one person handles all of the financial matters for the family and the other has limited involvement. When the couple prepares for divorce, this can leave the person who had not been involved in the finances at a clear disadvantage and jeopardize the couple’s ability to avoid Litigation. A Certified Divorce Financial Analyst (CDFA) can level the playing field and can help position the parties for life post-divorce.
3. Households with special needs children. For parents with special needs children proper estate planning is an absolute necessity. Divorce magnifies the need for proper planning and should not be overlooked. Special Needs Trusts are often created to protect the child without affecting Government aid.
4. One of the parties is self-employed. A family-owned business may be one of the couple’s largest assets yet its value is often subject to dispute. A Divorce Financial Professional can determine the value and propose ways for dividing the business without disrupting the operations.
5. You and/or your client suspect there are hidden assets. If there is a suspicion of hidden assets, negotiations will break down. A Forensic Accountant will analyze tax returns, bank statements, investment accounts, and credit reports to identify hidden assets and determine valuations.
6. You suspect inaccurate or fraudulent tax returns may have been filed. Most married couples file their tax returns jointly to minimize their tax liabilities. Unfortunately, that makes both parties liable for all of the information reported on their tax returns, even if actual knowledge is not possessed. A CPA that specializes in Divorce Taxation should be consulted regarding a potential Injured Spouse claim.
7. There are complex insurance needs (life insurance, health insurance, disability, or long-term care). In many States, the payor of alimony must carry life insurance to protect the payee in the event of an untimely death. It’s also often recommended that they carry disability insurance. But what happens if the payor is uninsurable and cannot obtain coverage? A Divorce Financial Professional can help determine other means for protecting the payee.
8. You are considering lump sum alimony. While alimony payments over time are tax-deductible by the payor and treated as income by the payee, lump sum alimony does not receive this treatment and may result in unintended tax consequences for the parties. In addition, determining an appropriate present value for a stream of alimony payments, particularly in cases of permanent alimony, can prove tricky.
9. Income needs to be generated from assets. In cases where earnings and alimony are not sufficient to support the client’s post-divorce lifestyle, assets received via equitable distribution can be used to generate income. A Certified Financial Planner™ with experience in divorce can advise clients on appropriate investment options.
10. Divorce Over 50 (Gray Divorce). In cases involving older clients, there may be more assets but less income to work with. There are also additional financial complexities regarding Social Security planning, Estate Planning, Medicare, and Pension payout options.
Bryan J. Koslow, MBA, CFP®, CDFA™ is a Divorce Financial Planner and Founder of the firm New Jersey Divorce Advisors, LLC. Bryan graduated from Hofstra University with Bachelor’s degrees in both Finance and Computer Information Systems. He earned his Masters in Business Administration with a concentration in accounting from Monmouth University and a Certificate in Financial Planning from New York University. He is a frequent speaker and writer on the financial aspects of divorce. His firm’s website is www.njdivorceadvisors.com.