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Just Divide It in Half — What’s So Hard?

Divorce Financial Analysis 101

Tom Dickson hosted a Financial Experts Network webinar featuring Kristen Shearin, divorce attorney, mediator, and Director of the Institute for Divorce Financial Analysts (IDFA). The session introduced Divorce Financial Analysis (DFA) and dismantled the persistent myth that divorce settlements are as simple as dividing everything 50/50.

Kristen emphasized that divorce is often the first time individuals are forced to understand what their assets actually do, not just what they are “worth” on paper. Equal division of assets rarely results in equal outcomes due to taxation, liquidity, timing, risk, and cash-flow realities.

1. Why “Just Split It 50/50” Rarely Works

Kristen explained that a 50/50 framework assumes conditions that are almost never true in divorce:

• Complete and accurate financial data
• Interchangeable assets
• Equal tax treatment
• Equal liquidity
• Stable income and timing

The webinar expanded on a critical insight:

Half today does not mean half tomorrow.

A dollar in checking, a dollar in home equity, and a dollar in a retirement account do not provide the same financial utility, especially when one spouse needs immediate cash flow and the other holds long-term, tax-deferred assets.

2. Asset Types Are Not Economically Equal

Kristen detailed why treating assets as interchangeable creates unfair outcomes:

• Cash pays bills immediately
• Retirement accounts may be inaccessible or penalized
• Homes are illiquid, expense-heavy, and emotionally charged
• Businesses, pensions, stock options, and deferred compensation vary dramatically in risk, control, and taxation

The webinar added that divorce financial analysis reframes the question from
“Is this equal?”
to
“Is this workable long-term?”

3. Separate Property, Inheritance, and Tracing

The session clarified common misunderstandings around separate property:

• Assets owned before marriage, inheritances, and certain trusts may qualify as separate property
• However, commingling, refinancing, marital labor, or reinvestment can convert separate property into marital property
• Tracing is required to prove separate property claims
• The burden of proof rests on the spouse asserting separateness

The webinar emphasized that jurisdiction matters, and outcomes vary widely by state law.

4. Cash-Flow Analysis Is the Core of Divorce Planning

Kristen stressed that divorce settlements fail when they ignore cash flow.

Divorce financial analysis examines:

• All income sources (including bonuses, executive compensation, rental income, and “hidden” cash flow)
• Realistic post-divorce expenses (not optimistic budgets)
• Health insurance, child costs, and retirement savings capacity
• Support duration and income volatility

A key webinar addition involved back-engineering income when tax returns are unreliable—especially common with business owners or cash-heavy enterprises.

5. Tax Consequences Can Reverse a “Fair” Settlement

The session highlighted tax issues that routinely distort settlements:

• Capital gains on real estate
• Cost basis differences
• Executive compensation taxation
• Early withdrawal penalties
• Social Security benefits
• Filing status changes
• Outstanding tax debt

Kristen explained that Qualified Domestic Relations Orders (QDROs) are required to divide ERISA-governed retirement plans and that delays or failures to execute QDROs can permanently destroy benefits, including survivor protections.

6. Scenario Modeling: Moving Clients from Emotion to Data

Scenario modeling allows advisors to:

• Test assumptions
• Compare settlement structures
• Reveal trade-offs
• Demonstrate sustainability
• Prevent irreversible financial harm

The webinar reinforced that unequal divisions are sometimes required to produce equal long-term outcomes, especially when one spouse retains income-producing assets and the other receives illiquid property.

7. Case Study: Why Analysis Changes Outcomes

The Matt and Laura Smith case illustrated:

• Business income manipulation
• Rental income control post-separation
• Spousal and child support modeling
• College planning and FAFSA implications
• Asset appreciation versus income generation
• Real estate versus business valuation trade-offs

Kristen emphasized that divorce financial analysts do not recommend outcomes—they model consequences so clients and attorneys can make informed decisions.

8. Emotional Reality and the Advisor’s Role

Divorce decisions are always emotional:

• Clients cling to houses
• Overestimate appreciation
• Fear loss of control

The analyst’s role is not to eliminate emotion but to prevent emotion from driving permanent financial damage, using neutral, documented analysis that withstands scrutiny—even in litigation.

9. New CFP Board Guidance on Marital Conflict (Critical Update)

Kristen explained the October CFP Board guidance on navigating marital conflict, which fundamentally changes advisor obligations:

Key points:

• A married couple = two clients
• Divorce or anticipated divorce creates a conflict of interest
• Advisors must:
  • Obtain informed consent or
  • Terminate joint representation
• Good intentions are not a defense
• Advisors lacking divorce-specific training must refer out

The webinar clarified that divorce financial analysis is now considered a specialty, not a general planning task, and improper advice can trigger ethical violations.

10. Role of the CDFA® Designation

Kristen explained that:

• CDFA® professionals specialize in divorce-specific financial analysis
• They may serve as neutral experts or party-retained experts
• They can testify in court
• The designation is held by financial planners, attorneys, and CPAs
• Typical fees range from $200–$500 per hour

External Fact-Check and Reference Sources (Written-Out URLs)

Institute for Divorce Financial Analysts (IDFA / CDFA®)

• https://institutedfa.org

CFP Board – Guidance on Navigating Marital Conflict

• https://www.cfp.net/ethics/compliance-resources/marital-conflict

QDRO requirements (U.S. Department of Labor)

• https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/qualified-domestic-relations-orders

IRS – Tax treatment of divorce and property transfers

• https://www.irs.gov/forms-pubs/about-publication-504

Social Security benefits for divorced spouses

• https://www.ssa.gov/benefits/retirement/planner/applying7.html

FAFSA dependency and divorce considerations

• https://studentaid.gov/help-center/answers/article/how-divorce-affects-fafsa

American Bar Association – Property division and tracing

• https://www.americanbar.org/groups/family_law/resources/marital-property/