The national divorce rate has been on a twenty-year decline, but the decision to break off a marriage and legally divorce isn’t to be taken lightly.
In its new Ask the Expert series, Cashay reporters connect with experts on vexing personal finance topics surrounding all of life’s milestones: Education, marriage, parenthood, divorce, and even death.
Stephanie Asymkos connected with certified financial planner and certified divorce financial analyst, Chris Chen. He’s a Massachusetts-based fiduciary wealth strategist who specializes in helping individuals and families plan during life transitions like retirement and divorce. Here’s his financial advice on divorcing.
[Interview has been edited for clarity and length]
What is a certified divorce financial analyst (CDFA)?
It’s a person who specializes in the financial aspects of divorce. The CDFA essentially works at the intersection of where the CPA (certified public accountant) and the CFP (certified financial planner) work when it comes to divorce.
There are a number of issues that come with divorce and one of them is the future. People have one set of assumptions about what the future, including what retirement might look like, and divorce is essentially upending all of that. When you divorce, you're going to end up with a lot fewer assets than when you were a couple and you might also have some income problems. What’s the impact on the future is really the key question that people want and need to have answered.
What is divorce coaching and post-divorce recovery?
Divorce is a highly emotional time and people are under high levels of stress, and that's regardless of the side of the divorce that you're on.
Divorce coaching is about helping people deal with the emotions and decisions that occur when you are in the middle of a divorce. Most financial planners typically deal with financial decisions on a spreadsheet, but it's only half of the story. People who are divorcing and going through that immense stress, sometimes need a little extra in terms of coaching and helping them deal with the emotion.
The post-divorce recovery is similar. After the extremely stressful time, sometimes lasting years, now you're finally divorced. A lot of people end up being a little bit down, they feel a bit lost because they maybe moved somewhere else, their home is emptier without a spouse or kids, and the familiarity of life that existed before is gone. Post-divorce recovery is essentially rebuilding your life, emotionally, so that you're now able to tackle the future confidently and productively.
What is the biggest financial mistake that people make going into a divorce?
Not understanding the consequences; they don't understand the long-term impact of getting divorced.
I tell people considering divorce that there are three questions they need to be able to answer in order to be fully informed when they eventually sign on the dotted line.
The first question is: Where are they financially today? A lot of people don't really know how much is in their spouse's retirement account or pension, or how much is left on their mortgage or owed on credit cards. There is a long-range of questions that people need to be able to answer when they get divorced.
The second question: Where are they going to be financially at the time of divorce? From assets, liabilities, and income standpoint, what are they going to be left with, with respect to income, whether it includes child support or alimony.
The last question is: Where are they going to be 15 years down the road? Divorce is essentially a new beginning with a new set of cards that they then need to figure out how to play with, in order to get to where they want to be later on. Later on, for a lot of people ends up being retirement, so are they going to be able to retire, using what lifestyle?
What documents should be gathered?
Divorce is paper-intensive and conflict-intensive. Your lawyer will ask for everything, like totally absolutely everything. In the best of cases, collect documents as a couple, but if the couple has decided that they can't stand the sight of each other, then it’s an individual issue.
Someone needs to look back over their entire married life. Financially, what are the major events that have happened: when they bought their house, what improvements have they put into it and document that, if possible. What accounts exist like pension, retirement, checking, investments, health insurance, life insurance or disability insurance, and annuities.
Most states will require you to collect your expenses and categorize them. The basic reason for that is that the courts want to see that when you're divorcing, whatever financial settlement is coming out that you will be able to pay your bills and survive.
What about spousal support or child support?
Spousal support is determined by state law. The general rule is that spousal support is going to be between 30% and 35% of the difference in income between the two parties.
The basic theory for child support is that clearly, it's expensive to raise children, and just because you're divorcing doesn't mean that your financial responsibility for the child is gone. The courts will want to make sure that a couple’s young children are taken care of, at least financially, until their 18th birthdays.
Read more information and tips in our Family section