Veralynn Morris, a certified divorce financial analyst in Frederick, answers:
Beware! This is an area where I see pitfall after pitfall. Your typical financial planner is typically not specially trained in the financial aspects of divorce. In fact, as divorce financial planners are not trained in the area of law and cannot give legal advice, attorneys can only give advice that is ‘incidental’ to their practice. Certified Divorce Financial Planners and Analysts are qualified to give financial advice and recommendations specific to the financial areas of divorce. We can take a snapshot of what ‘today’ looks like and we make projections well in to the future so that we can equitably recommend on the division of marital assets. Many of us are licensed investment advisors and registered representatives in the brokerage business. We are knowledgeable in a broad range of subjects such as pensions, defined contribution plans, retirement planning, insurance, real estate, investments, annuities, taxation, division of marital property and more.
Concerning the division of assets, I see many times where the division of assets might appear equal but is improperly divided without the consideration of taxes. For example, a brokerage account containing stocks — when they are divided in equal dollar amounts, no consideration is taken as to which assets might create future taxation to one or the other party. A stock has a ‘basis.’ That means that the original price of the stock plus any reinvestment of earnings is considered the ‘basis.’ At the sale of a particular stock, its cost to buy was higher than another. They are sold at the same price. The one bought at the lower price creates a greater tax issue. The account, say $100,000, split in half — without proper consideration as to which stocks to take — their “basis,” your $50,000 might really be worth $40,000.
Another is the split of retirement assets and one party goes and visits her financial planner. Under many circumstances the party may need money to pay her attorney and other expenses. She is under 591⁄2. The planner decides to roll the account to an IRA — perfectly acceptable practice under normal circumstances. What if money was needed from the retirement account? It should have been taken directly from the retirement account before it was rolled over to an IRA, to avoid a premature distribution that then created a 10% penalty. Best to take the money from the retirement account and then roll it to an IRA. You avoid the 10% penalty. Of course, any withdrawals are taxable.
The generalist financial planner is not trained in divorce planning. As trained divorce financial planning professionals, we look at methods between couples sometimes even before there is any thought of divorce. Furthermore, during the process until its completion, we are involved in the case. Even after the case, we can help the client prepare for their future, including budgeting, investment and financial planning and the division of retirement assets — keeping in mind that we are working with divorcing couples.