Aviva Pinto is a CDFA, CDS and Managing Director and Wealth Manager Wealthspire Advisors.
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Consider the following scenario: You’ve worked hard to make your home a sanctuary. Your children grew up there and may still be attending local schools. You love your neighborhood. Giving it up in a divorce is not something you want to consider. But if you find a house in your hamlet, will you be able to afford it?
Traditionally, the non-money spouse, or the one who would have primary custody of the children, would try to keep the family in divorce. When a home is to be divided in divorce, several factors must be considered in determining its true value.
If the home has a large outstanding mortgage, you may agree to a smaller settlement than you understand. For example, a client came to me and told me that their house is worth $5 million. They were going to keep the house, and their spouse would keep an investment portfolio of $5 million. He said it would be a “fair” division. I asked if the house was mortgaged. The customer didn’t know. It turned out that the home had a mortgage of $2.1 million, so the actual value to the client in the divorce was only $2.9 million. Hardly a fair division.
Houses require large cash outlays – even after purchase. For example, the annual tax on the customer’s home ran close to $112,000 per year. Factoring in gas, electricity, lawn care, pool care, water, other utilities, and routine maintenance, it became clear that keeping a home would be a financial burden that the client could not afford without a large income or adequate spousal support. . Knowing your cash flow and budget can help determine what you can actually spend over the long term. In this case downsizing became the solution, and the family moved to a smaller home with lower taxes and costs.
Emotional attachment can get in the way of making sound financial decisions. Before deciding the house as an asset, you passed To live in a divorce, consider working with a financial professional who can help you make an unbiased decision about important factors to consider.
A Certified Divorce Financial Analyst (CDFA) “helps couples and their attorneys achieve an equitable divorce settlement using knowledge of tax law, asset distribution, short- and long-term financial planning.” A CDFA can help you create a financial plan that shows the impact of choosing different assets in a divorce. The focus should be on making sure that your divorce settlement will allow you to live your life without being the “home poor”. For example, what if your home is worth a lot, but you need to spend most of your income to keep it? It is better not to worry about how you are going to pay for everything and focus more on how many years the money needs to last.
A CDFA is basically a certified financial analyst with a dose of divorce law. They are not lawyers and cannot provide legal advice, but they know enough about how divorce laws relate to finances to help their divorced clients. You can find the CDFA by visiting the Directory of the Institute for Divorce Financial Analysts or the website of the National Association of Divorce Professionals.
Make sure you are looking for a CDFA that you can trust. Divorce is not only emotional, but you need to be open and honest about what you know and what help you need. Ask for a free consultation and ask about their practice, their qualifications, their experience, their scope of work and the results you want to achieve. You will be able to tell from your meeting/conversation whether they are a good fit for you.
The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice regarding your specific situation.
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