Tabak & Kiosse, LLP is pleased to announce that Leyla A. Kiosse, Esq., recently completed a specialized educational program in professional divorce analysis and is now a Certified Divorce Financial Analyst (CDFA).
What is a CDFA? A CDFA is a professional, either with legal or financial expertise that works with individuals to help them understand the financial reality of a divorce. A divorce involves a myriad of issues beyond the dissolution of the marriage, such as spousal support, child support, and a division of the assets and debts. A CDFA evaluates a client’s current financial picture and helps identify the short-term and long-term effects of dividing property and debts.
As discussed in past articles, New York is an “equitable distribution” state. This means that, during a divorce, property and debt is divided between spouses “equitably,” which is another way of saying “fairly.” Many people believe that equitable distribution means an automatic 50-50 division of marital property and debt. This is not the case.
Many people also believe that adding up the value of marital property, subtracting out the debt, and then dividing by two is the fairest way to divide assets. While this may sound fair in concept, it may not always be fair in practice, especially if the marital property consists of many different assets.
For example, let’s say a married couple owns a home and each spouse has one retirement account. The net value of the house is $100,000. The husband’s retirement account is worth $150,000 and the Wife’s retirement account is worth $50,000. So the total value of the marital estate is $300,000. The Wife’s settlement offer is that she keeps the house and her retirement account and the Husband keeps his retirement account. The Wife views this proposal as fair because she thinks they are each walking away with $150,000 in assets.
However, the Wife’s settlement offer may not be the best option for her. The house is not a liquid asset, which means that while it is worth $100,000 she cannot access its value unless she sells it. If selling the house is not part of the Wife’s plan, then this presents a problem for her. If the house is to be sold, there may also be tax ramifications to the Wife as a result of the sale, which means she may be receiving less money from the house than she initially thought. Further, while the house may be an asset, it is also a burden and will require upkeep. So it may not make sense for the Wife to keep the house if it is costly to maintain and she cannot afford to maintain it.
Depending on the type of retirement asset, the Wife may be restricted as to how and when she can access the money in that account. There may also be tax consequences to her if she makes any withdrawals from the account. In our example, a CDFA can help to identify and educate the Wife about these issues so that she can thoroughly evaluate a settlement proposal.