Divorce Divorce Financial Planning 1 — Questions and Answers
Question 1: What is a 'Certified Divorce Financial Analyst' (CDFA)?
- An attorney who specializes in divorce law
- A financial professional trained to help clients understand the long-term financial impact of divorce settlements (Correct answer)
- A court-appointed accountant for dividing assets
- A tax attorney who handles divorce-related tax issues
Correct answer: A financial professional trained to help clients understand the long-term financial impact of divorce settlements
A CDFA is a financial advisor specially trained to analyze the long-term financial consequences of divorce settlements and help clients make informed decisions.
Question 2: Why is it important to consider tax implications when dividing assets in a divorce?
- Tax implications are irrelevant in divorce proceedings
- Different assets have different tax consequences, meaning a $100K IRA may be worth less than $100K in cash after taxes (Correct answer)
- Taxes are automatically forgiven upon divorce
- Only assets over $1 million have tax implications
Correct answer: Different assets have different tax consequences, meaning a $100K IRA may be worth less than $100K in cash after taxes
Assets like retirement accounts carry embedded tax liabilities — a $100,000 IRA will be taxed upon withdrawal, making it worth less than $100,000 in an after-tax brokerage account.
Question 3: What is a 'financial disclosure' requirement in divorce?
- A requirement to hire a financial advisor
- Both spouses must fully disclose all assets, debts, income, and expenses to the court (Correct answer)
- A court order freezing marital accounts
- A report prepared by the divorce attorney
Correct answer: Both spouses must fully disclose all assets, debts, income, and expenses to the court
Financial disclosure requires both spouses to provide complete, honest documentation of all their finances, including income, assets, debts, and expenses, under penalty of perjury.
Question 4: What is the danger of 'hidden assets' in a divorce?
- It is only a civil issue with no consequences
- One spouse may receive an unfair settlement if the other conceals assets from the court (Correct answer)
- Only assets worth over $50,000 must be disclosed
- Hidden assets are automatically discovered by the court
Correct answer: One spouse may receive an unfair settlement if the other conceals assets from the court
When a spouse hides assets, the other spouse may receive less than their fair share; courts take asset concealment seriously and can reopen settlements if discovered.
Question 5: What is a 'QDRO' used for when dividing retirement assets?
- Qualifying a spouse for government benefits after divorce
- A court order that transfers a portion of a retirement account to the other spouse without tax penalties (Correct answer)
- A document required to close joint bank accounts
- An order requiring an employer to pay alimony directly
Correct answer: A court order that transfers a portion of a retirement account to the other spouse without tax penalties
A Qualified Domestic Relations Order (QDRO) is a legal order that directs the administrator of a retirement plan to pay a portion of the benefits to the former spouse without early withdrawal penalties.
Question 6: What does 'liquidity' mean when planning finances after a divorce?
- The total value of marital assets
- How easily an asset can be converted to cash to meet immediate financial needs (Correct answer)
- The amount of debt owed after divorce
- The monthly income available after alimony
Correct answer: How easily an asset can be converted to cash to meet immediate financial needs
Liquidity refers to how quickly and easily an asset can be converted to cash; real estate is illiquid while savings accounts are highly liquid, which matters greatly post-divorce.
Divorce Divorce Financial Planning 1
What is a 'Certified Divorce Financial Analyst' (CDFA)?