Financial Planners Take Guesswork Out of Divorce
ERIC SMITH The Daily News
Jim Whitehead has been a financial planner for the past five years, helping clients manage their retirement, their wealth, their estates, their children's college funds - pretty much their entire financial pictures.
But Whitehead, a partner at Shoemaker Financial in Germantown, said he has long believed the financial planning industry was ill-equipped to help clients manage the financial complications of a divorce, including how to divide a stock portfolio or 401(k) properly.
"I could guess at it, and I could give you a real smart answer, but I didn't feel secure with that answer," Whitehead said. "I didn't feel like I could do anyone justice because it wasn't what I was trained to do."
With this in mind, Whitehead set out earlier this year to become a certified divorce financial analyst (CDFA), a relatively new designation geared to help planners handle the financial needs of clients in a divorce.
"When you're going through a divorce, you're out in the middle of the forest," Whitehead said. "You can't see the trees around you. You're just trying to breathe and get through this forest, this uncharted territory."
Divvying it up
From the splitting of assets to the custody of children, divorce can be messy. In the United States, close to one out of every two marriages ends in divorce, meaning the need for knowledgeable divorce professionals is immense.
The bulk of a divorce proceeding is handled by attorneys who deal with legal issues such as child custody. But there's often more to a divorce than who gets the children on the weekend and who gets them during the week. That's where a divorce attorney might refer a client to a CDFA.
"In divorce, you're talking about people going their separate ways," Whitehead said. "You have children issues, you have asset issues and you have emotional issues. Sometimes people want to fight over a set of china. Well, you need your legal department to help you with that. Sometimes you need to figure out a best way to split the assets. I can help the legal side with that."
Whitehead noted that couples often have precarious financial scenarios to work out with multiple accounts totaling large amounts of money. One example of where a CDFA's expertise comes in handy is the completion of a Qualified Domestic Relations Order (QDRO), the legal document that divvies up pension or retirement accounts during a divorce.
"Lawyers do a marvelous job, but they're doing legal work," Whitehead said. "Sometimes you need somebody else to come in and help with the financial picture just to make sure it's where it needs to be.I'm there to be an expert in what I already do."
There are just eight CDFAs in the Memphis area, according to the Southfield, Mich.-based Institute for Divorce Financial Analysts (IDFA), which, according to its Web site, is "the premier national organization dedicated to the certification, education and promotion of the use of financial professionals in the divorce arena."
The IDFA certifies a CDFA, who must pass a course before adding the designation behind his or her name. The number of CDFAs is increasing by 25 percent each year, according to the IDFA.
"If you're focusing on wealth management, the CDFA may not be the best degree," Whitehead said. "If you're focusing on company benefits, it may not be the best degree. But if you're focusing on relationships with people, you have to understand that this is going to be an issue."
Divorce is an issue these days, with complex retirement funds and other investments making the issue even more muddled - and making the need for expert advice more necessary.
"What we're looking for in any divorce is a happy and fast ending," Whitehead said.
Taking care of both sides
Another case that might be best handled by a CDFA is whether one spouse or the other should keep the house while the other one keeps the cash. This might look good on paper at a superficial level, but it can be dangerous if the spouse who keeps the house doesn't earn enough income to pay the property taxes or utility bills.
"Let's look at budgets and day-to-day lifestyle and can both of them be OK," Whitehead said. "Let's make the best financial decision for you and let's look at the best financial decision for the other party. Let's make the best financial decision for the split of this partnership."
Kathy Williams, senior vice president and chief compliance officer for Waddell & Associates Inc., earned her CDFA designation about a year and a half ago. She cited a similar example when touting the benefits of a CDFA.
Williams said some of the many questions that arise in divorce cases include: "Who brought the wealth into the marriage? How much did they co-mingle the assets during the marriage? Was the wife a stay-at-home and the husband earned everything? How will the wife live after the husband leaves? How are the kids going to be taken care of? Who's going to take care of college, stock options, 401(k)s?"
All those questions need to be answered so each party benefits as much as possible.
"We want to do it right and make sure both sides can live happily," Williams said.
Walked a mile in those shoes
Whitehead has gone through a divorce. So has Williams. Both readily admit it, and both said it has helped them deal with the stress their clients might face during the process.
"I'm divorced," Williams said, "and that's how I ended up being the expert in divorce for our clients because I've been through it, so I knew a lot of the issues that you go through - not just financial but psychological. I'm kind of the grief counselor, so to speak."
Whitehead echoed those comments.
"I am divorced," he said, "but that doesn't mean I think it's the right decision. At the same time, if I can give counsel to people to help them not make that drastic decision, I want to be able to do that too."