December 3, 2024 • 38 mins
Embark on a journey through the fiscal labyrinth of divorce with family law attorney Alex Hunt and his guest, Certified Divorce Financial Analyst Sarah Cuddy, as your guides. Learn what knowledge you need to navigate financial challenges that commonly arise in Texas divorces head-on and with confidence.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:08):
Hi and welcome to the Texas Family Lawyer Podcast.
My name is Alex Hunt.
I'm the managing attorney atHunt Law Firm, with offices in
Katy, Sugar Land, Cypress andLeague City, and I'm very
excited today to be joined by mygood friend and colleague,
Sarah Cuddy.
Sarah is a certified divorcefinancial analyst and we've
(00:29):
worked numerous cases together.
She provides an incredibleservice for us, so welcome,
Sarah.
Speaker 2 (00:36):
I'm so happy to be here.
Speaker 1 (00:37):
Thanks for inviting me, of course, of course.
So we're just going to jumpright in.
Let's talk a little bit todayabout what a certified divorce
financial analyst, or CDFA, isand what you do.
Speaker 2 (00:50):
Yeah.
So in a nutshell, a CDFA, acertified divorce financial
analyst is an expert in theintersection of family law and
money.
It's very important to makeclear to the audience we're not
attorneys, we're not trainedattorneys.
Most of us most of us arefinancial professionals, but
where we fit in the case ishelping clients make sense of
(01:12):
maybe a more complex estate orhelping their attorney and them
make some of the really keyfinancial decisions that they're
going to be making in a divorcewhen they're dividing up
communities.
Speaker 1 (01:22):
Okay and I know we've definitely relied on you for
that and we've had some reallyintricate cases and complicated
cases and it's beenextraordinarily helpful.
So what makes a CDFA distinct?
I know that you also have someother initials behind your name,
but tell us about CDFA and whatmakes that special.
Speaker 2 (01:43):
So it comes down to some specialized training.
So a CDFA is going to havetraining in essentially three
modules, right, they're going tohave the financial issues of
divorce, they're going to havethe tax issues of divorce and
then they're going to have thefundamentals of divorce.
So they've had these threemodules that they've had to
(02:03):
study and pass a test on.
And then, after they've passedthose three module tests, they
then need to take kind of whatyou would think of as a capstone
, right, it's a case study-basedtest that they need to pass.
And then there's also ongoingeducation.
So, versus maybe a financialadvisor who is a certified
(02:24):
financial planner yes, they knowa lot about finance, they know
a lot about retirement plans,but what they're missing is that
special training in divorce lawDoes that make sense.
Speaker 1 (02:35):
It does, so tell me.
This is a very niche area offinancial planning.
What's your background?
What got you interested in that?
Speaker 2 (02:43):
Yeah, planning.
What's your background?
What got you interested in that?
Yeah, well, when I firstdecided to pursue the CDFA
designation, I was alreadyworking with women who were
transitioning in thatpost-divorce phase and a mentor
of mine at Baird had said to meyou know, you'd be really good
at this work.
I really think you shouldpursue the designation.
(03:03):
And I thought to myself thismakes sense.
We all know that when you havea niche you tend to be more
successful.
And what really prompted me toget charged up about being a
certified divorce financialanalyst was going through my own
divorce.
So I remember how confusing andscary and stressful that time
(03:26):
was.
And that was as someone who wasa financial advisor who was
very much in control of her ownfinances.
Speaker 1 (03:32):
And I said to myself you know if I'm, if it was this
hard for me, how much harder,how much more confusing, how
much more stressful must it befor someone who doesn't have the
experience and I know that whenwe first met, you just had
received the certified divorcefinancial analyst credential and
then you've since added thecertified financial planning
(03:53):
credential, and I think it'sreally important because you
know, after the divorce is over,you could potentially stay with
clients for the long term.
So you're looking at a longterm solution.
You're looking at what do Ineed in order to be successful
and then also I'm going to stay.
You know you're going to staywith them throughout.
You know the process, help theminvest, help them make proper
(04:16):
financial decisions.
So you talked a little bitabout what it takes to become a
CDFA.
Tell me a little bit more.
Is there ongoing training?
What kind of training does thatentail?
Speaker 2 (04:27):
That's a really good question.
So, as with most designationsand certifications, you need to
have some component ofcontinuing education.
So the Institute for DivorceFinancial Analysts, which is who
issues the CDFA designation,says every two years you need to
complete at least 15 hours ofcontinuing education.
Now, in my opinion, that'sactually a pretty low bar.
Speaker 1 (04:49):
Isn't it?
Speaker 2 (04:50):
Right, and what I have found has really helped me
keep my skills fresh is bycommitting to a once-monthly
blog post on some technicaltopic related to divorce,
because what it does is itforces me to stretch myself and
actually do some research.
A really great example is thatI had an incredibly long article
(05:11):
which is not meant to be readstart to finish, on retirement
accounts and divorce, and itcaused me to say, well, actually
, how does this work?
Because I certainly, in myworking time as a CDFA, have not
seen absolutely every type ofretirement account, so it forced
me to research and to go askother experts and to really form
a more solid understanding.
(05:31):
So, yes, I'll do the 15 hoursas required, but I do find that
you really do need to stretchyourself.
And I just want to circle backto having that dual designation,
having that CDFA plus CFP.
Being a CFP, a certifiedfinancial planner professional
definitely helps me be more fitfor the client post-divorce, no
(05:52):
question, but it also helps mebe more fit than the average
CDFA during the divorce.
Speaker 1 (05:57):
Tell me more about that.
Speaker 2 (05:58):
Well, the CDFA training, honestly, is a little
surface level.
Right, it's a designation thatyou can complete in about three
months if you're a good studierand a good test taker which I am
right but it doesn't give youevery single tool you need,
(06:20):
maybe hiring a certified divorcefinancial analyst.
You also want to consider dothey have other relevant
designations that are going tohelp make them a more complete
solution versus somebody whojust has the CDFA?
Maybe they don't have a ton ofexperience, Maybe they don't
have other designations.
Speaker 1 (06:37):
Okay, and I know for us it's important to work with a
lawyer that's worked with theCDFA as well.
I don't know what yourexperience is with that, but we
know what you can do, we knowwhat you can't do.
You know what we can do andwhat we're what we maybe can do
but we are not the best at so.
(06:57):
You know, we're great in thecourtroom, we're great with
discovery, we're great withpretrial litigation and we can
certainly help with finances,but to bring a financial expert
on board is always somethingthat helps our cases and really
it's something that helps givepeace of mind to our clients.
We were talking just before theshow is that you actually are
(07:17):
working on a case of ours withanother attorney, melissa
Massoum.
She's in mediation today, andso I know that you're on call.
Another attorney, melissaMassoum.
She's in mediation today, andso I know that you're on call
and that's something that you dois.
You might not necessarily go tomediations, but you're on call
in case some advice is needed.
Some guidance is needed.
Speaker 2 (07:35):
Absolutely, and it happens often right.
One of my goals as a CDFA, onany case, is to get the attorney
client team so confident intheir understanding of the
estate and what will and won'twork for the client that they
don't need me to be in the room.
But it almost always happensthat a question will come up
(07:55):
that they weren't anticipating,that we couldn't anticipate, and
it's just a quick 10-minute,15-minute phone call.
Sometimes it's hey, let meemail over the current version
of the settlement, lay eyes onit and tell me what you think.
And that can be the differencebetween reaching an agreement
that day versus having to comeback and mediate a second time.
Speaker 1 (08:16):
Yeah.
Speaker 2 (08:16):
So one of the most important things that I can do
for a client is help them reachan agreement more quickly that
they feel confident about, notan agreement they've been forced
into, but one that they feelreally good about, rather than
endless rounds of discovery andmediation.
Speaker 1 (08:31):
One of the things that I often say is the
uninformed mind says no.
So one of the reasons that Iencourage folks that are on the
other side of our case asopposing parties, that they
should get a lawyer, because ifthey don't know family law then
they're more likely to just sayno.
But if our clients and theother side feel that they have
(08:52):
all of the knowledge andfoundation set out in front of
them, then they have theconfidence to then say yes to a
mediation and potentially avoidcourt, which is less expensive,
less stressful.
It's just an overall bettersolution.
So we've set the foundation forthis conversation.
(09:13):
Tell me some of the things thata CDFA can help attorneys
family law attorneys and helpfamily law clients with.
Speaker 2 (09:22):
Yeah Well, let's start with the beginning in mind
.
Family law clients with yeahWell, let's start with the
beginning in mind.
Depending on the practice anddepending on the attorney,
sometimes making thatspreadsheet, the inventory of
assets and liabilities, that isliterally their worst nightmare.
So I can certainly take thatoff of somebody's plate.
(09:43):
Oftentimes, though, where I'mcoming in on a case, it's going
to be with, maybe, valuation andalso helping untangle maybe
some more complicated assets.
So, for example, let's say thatwe have, you know, a husband,
wife, wife has stayed home,maybe raised kids.
Husband's a highly compensatedexecutive, say, at an oil and
gas company.
This is Houston, katy, afterall, we have a lot of folks in
(10:04):
oil and gas, and oil and gasoften means complex executive
compensation schemes with mayberestricted stock or
non-qualified stock options or,you know, unvested stock or
pension plans.
We don't see those every day,and they can be very tricky to
(10:25):
value.
What is this thing worth,especially pensions that don't
have some sort of lump sumpayout.
It's just the stream of futurepayments, right, and unless the
parties are willing to justdivide those future payments
straight down the middle, you'regoing to have to put a value on
it in order to put it on thespreadsheet in order to put it
in one person's column.
Speaker 1 (10:45):
Absolutely, and just not to cut you off, but this is
a perfect example of somethingthat family law attorneys not
the best at, not the experts in,and so this is where we call
upon folks that know how to dothis to help us out.
Speaker 2 (10:59):
Absolutely, and you know, and it's just the fact
that this is not what you guysare trained for.
You all are legal experts,Right?
And I'm glad that this iscoming up, because sometimes
clients will make the mistake ofasking their CDFA a legal
question, and so I am foreverreminding clients that I am not
(11:20):
an attorney.
I cannot weigh in on legalprocess or what their legal
rights are, and that's where itgets really tricky working in a
process where there is so muchentanglement.
So, yeah, things like valuingpensions, things like untangling
, you know, complicated stockschemes, the other thing that
(11:40):
comes up and it actually comesup in this case that is
hopefully settling this week isokay, we have all of this
employer stock and it's held inall of these different plans.
But I'm the one in the roomsaying but is it transferable?
Can this actually move fromhusband's name to wife's name?
Because one of the big pitfallsof dealing with a highly
(12:03):
complicated estate is you mayreach an agreement that you
literally can't implement, andthat's not good for the client,
certainly, and it's certainlynot good for you guys because
you'll have to go back and fixit later.
So having a CDFA on board whenthere's complexity can save time
, money, frustration,consternation, and it can help
(12:24):
you get to an agreement.
Maybe, we hope, a little faster.
Speaker 1 (12:27):
And one of the reasons just to remind clients
or prospective clients it's oneof the reasons that we encourage
them to do discovery writtendiscovery is to get those
documents so that way we and youcan analyze them and get that
legalese that we can dig ourhands into to see if the
(12:48):
solutions are even able to beimplemented.
And I know that we had a casewhere there was a couple of
annuities and you might not evenrecall this, but there was a
couple of annuities involved andI remember you dug into the
details and we decided which ofthose annuities was going to be
in our client's best interest totake.
(13:09):
And so one spouse got one, onegot the other and it just worked
out better that she was goingto receive the annuity that paid
out a little bit earlier.
She was a stay-at-home parentand could have used that cash
flow a little bit earlier thanher husband who was working and
had an established career.
So little things like that,that on paper might not show
(13:29):
through, but once you get intothe nitty gritty it matters to
our clients.
One of the things you mentionedwas an inventory and
appraisement and folks might notbe familiar with what that is.
Can you explain?
I mean it's very importantfoundation of trying to reach a
settlement or a court.
Tell us a little bit about whatan inventory and appraisement
(13:50):
is.
Speaker 2 (13:51):
Yeah, well, in every case, you're trying to reach an
agreement about if you havekiddos, the kid stuff right, and
that you can't do on aspreadsheet.
But you also have to decide whatdo you own as a couple, what do
you owe as a couple in terms ofdebts and what is outside of
the community and you might wantto talk a little bit about
(14:11):
Texas being a community propertystate but we have to have a
list of everything that you own,everything that you owe, and we
have to know what it's worth.
And that's what we call theinventory and appraisement.
Most people just use a simpleExcel spreadsheet.
I use a highly complex anddetailed Excel spreadsheet,
which I know is famous in youroffice, and the reason I have
(14:35):
that level of detail andcomplexity is because when you
guys are drafting the decree, Iwant you to have at your
fingertips every piece ofinformation that you'll need,
and I also find that when I'mhelping folks make decisions,
the more details I have, thebetter my work product is.
So an inventory andappraisement sounds fancy.
All it is is a list ofeverything you own, everything
you owe and what is it worth,and this is the working document
(14:57):
that you and the clients willuse during settlement
negotiations.
Speaker 1 (15:02):
Absolutely, and in those negotiations it's really a
living, breathing document atthat point, in that we'll have
columns for husband, wife or, ifit's the same-sex couple, each
of the partners and we'll movethings into the different
columns.
We'll have percentages at thebottom and it will help us
determine whether it's a justand fair division of assets.
(15:22):
So we talked a little bit aboutdividing assets as something
that a CDFA can help with.
Tell me a little bit more aboutvaluing assets and what that
looks like.
Speaker 2 (15:31):
Yeah, Great question.
Most of the time we're justlooking at a statement, right?
So if it's a bank account, ifit's an investing account, if
it's an IRA, if it's a 401k, youjust look at the statement to
see what is it worth.
That's very straightforward.
You don't really need a CDFAfor that.
But let's say that you havesomething that isn't as
(15:52):
straightforward pensions and wetalked about this a little while
ago.
Pensions can sometimes youvalue that, right?
You're not going to put $2,000on the spreadsheet, so in that
case, a CDFA will come in andwe'll do a calculation.
(16:21):
It's going to sound so fancy.
Present value of future cashflows.
This is the calculation we do.
It actually could be done on aspreadsheet with I think it's
five inputs To me.
Doing a present value of futurecash flows calculation is
incredibly intuitive.
I did probably thousands ofthem in my finance class, but to
(16:42):
most people that's not anintuitive calculation, right?
Then you might have somethinglike a set of maybe
non-qualified stock options.
Well, what the heck are thoseworth?
What even is a non-qualifiedstock option?
So that's where you might comein and have a CDFA, do a set of
calculations to figure out whatthose might be worth.
The only other category that wetypically see are things like
(17:04):
restricted stock options Sorry,restricted stock units, All of
these acronyms and all of theserestricted things.
But what you might have is astatement that shows a certain
value, and some of thoserestricted stock units are
vested, meaning they're owned bythe person, and some might be
(17:25):
unvested, meaning they're notyet owned by the person and they
could be forfeited for whateverreason.
And that's when you want tohave a CDFA come in and look at
that statement and say this iswhat's actually subject to
division, and this is what wecan't divide because we don't
even own it yet.
Speaker 1 (17:44):
And the RSUs, the restricted stock units, are
something that, especially beingin a big city, being in a big
oil and gas city, as we see, alot of restricted stock units
are something that oil and gascompanies you often see that as
part of a retirement plan.
So it's always helpful to havea financial expert to help us
out in valuing those and, likeyou said, just telling us
(18:05):
whether that's something that'seven divisible right now.
And those are conversationsthat we have usually behind the
scenes or before a mediation anddetermining what our first
offer is going to be.
Absolutely so that's valuation.
Tell me a little bit more.
We talked a little bit aboutdivision, but what specifically
(18:26):
are some things that you willprovide advice on or the
conversations that you have withclients?
Speaker 2 (18:32):
With respect to division.
So the very first thing I wantto know from the client is talk
to me about what your firstcouple years after the divorce
need to look like.
And this is a huge blind spotfor so many clients, because
they get tunnel vision.
All they can think about islet's just get this case settled
.
I don't care, I just need asettlement.
And I see clients sometimesfail to take into account what
(18:56):
comes next and they end up witha settlement that doesn't serve
them.
So the very first conversationI'm having is around goals,
right.
And then I need to understandtheir ability to earn income and
support themselves post-divorceso that I can help them craft
an offer that will set them upfor success post-divorce.
So one horror story and this wasnot a case from your firm, but
(19:18):
we had a client who was awardednothing but retirement assets
and she wasn't old enough tostart tapping into those
retirement assets without apenalty and one of her primary
post-divorce goals was to buy ahouse.
Okay, so now we have assets wecan't touch, we don't have any
cash, and she really, reallywants to buy this house and we
(19:41):
had to bend ourselves intopretzels to make it happen and
we did, but had we had that goalin mind when crafting the
settlement agreement, thingsmight have gone differently.
So that's always number onewhat do you want your life to
look like after the divorce?
The next thing I'm going to belooking at is what asset is most
advantageous for each party.
(20:03):
So a good example would be wehave a high earning spouse and a
lower earning spouse, right,and the lower earning spouse is
going to need access to assetsfor at least a couple of years
just to get themselves back ontheir feet.
In that case, I'm looking totake anything that's not sitting
in a retirement account,anything that doesn't have
strings attached, and sending itto the lower earning spouse,
(20:27):
and I want anything sitting in aretirement account that's
currently not being taxed andwon't be taxed for a long time.
I want that to go to the higherearning spouse.
This is a win-win Lower earningspouse gets access to liquid
assets.
Higher earning spouse gets tokeep a hold of the things that
are currently tax deferred,which gives them a better tax
picture.
Speaker 1 (20:47):
And that's something that we run into often,
especially out in Haiti, whereour primary offices you will
have a primary breadwinner.
You will often have a parentthat stays at home, and that
parent that has stayed at homefor sometimes five, 10, 15 years
will need a little bit ofrunway in order to get their
(21:09):
career off the ground, and sohaving that liquidity is
something that allows them therunway in order to get some
training, go back to college andget their professional career
off the ground.
So tell us a little bit aboutyou know.
One thing that we run into isthat when you have, say, a
(21:34):
retirement account, you have abrokerage account, is that there
are different tax consequences,and this is something that
we'll often look to you for.
I know that you don't providetax advice, but we certainly
have conversations about it.
Tell us about the taxconsequences of some of these
and how that can play anincredibly important role.
Speaker 2 (21:57):
Yeah, absolutely so.
I'll kind of go back to myexample from a few moments ago,
when we talked about the womanwhose divorce settlements gave
her only retirement assets, butshe really wanted to buy a house
right.
I mean the tax consequences ofdrawing out of a retirement
account before you're age 59 anda half, and that's the tax law
says.
If you tap it before 59 and ahalf, you're going to pay taxes,
(22:20):
ordinary income, just like youwould with a regular
distribution, but you're goingto pay another 10% penalty.
I mean, and depending on yourtax bracket, that could be a 30%
40% bite that comes out of thatasset right out of the gate.
So there are some prettymeaningful impacts and
consequences if you don't planthis thing carefully.
So one of the things we can dois we can look at the post-tax
(22:46):
value of any given asset in thehands of one spouse versus
another.
That can sometimes give usinsight into what's going to be
most valuable.
Speaker 1 (22:56):
And what you mean there is you have a higher
earning spouse, they might be ina higher tax bracket, and you
have a spouse that maybe isn'teven earning any income, they're
going to be a lower tax bracket.
So more money is going to UncleSam if a certain asset is given
and pays out to a higher earner, correct?
Speaker 2 (23:16):
And you know what?
One thing we don't run into asmuch is with, say, brokerage
accounts only because capitalgains taxation, the 15% bracket
is very wide.
I want to say the 15% bracketstarts at $80,000 in ordinary
income and ends at about$450,000.
So oftentimes we see bothspouses are sitting inside the
(23:38):
same capital gains tax bracket.
Speaker 1 (23:40):
Okay.
Speaker 2 (23:41):
It's really retirement accounts.
Okay, retirement accounts, whenyou take money out, are taxed
like ordinary income.
Speaker 1 (23:47):
In those brackets you could have one spouse that's in
the I don't know 12% bracketand another spouse in the 24%
bracket, and now we have a hugedelta right between those two,
and one of the things that I'veencountered is you'll have an
opposing counsel or maybesomebody that's not
knowledgeable about the way thistax impacting works, and you'll
(24:11):
have on a spreadsheet theinventory.
You'll have $12,000 that'ssitting in a savings account,
yep, and then you'll have$12,000 that's sitting in a 401k
, a traditional 401k that hasnot been taxed yet, and on a
spreadsheet you have 12,000 and12,000.
One's going to husband, one'sgoing to wife, and it looks like
(24:31):
a 50-50 split, but in realityit's not Not the same.
Tell me a little bit about whynot.
Speaker 2 (24:38):
Okay.
So if you have $12,000 sittingin a bank account and you take
that $12,000 out and you spendit, you get to spend all $12,000
and you have zero taxes due.
Now I am going to, becauseBaird would be angry if I didn't
, but I am going to point out ifyou have interest income on any
of that, you're going to paytaxes on the interest.
Okay, but that's pay as you go.
(24:59):
Okay, but $12,000 in a bank is$12,000.
$12,000 in a 401k is not$12,000.
It's $12,000 before you paytaxes.
So let's say, just to keep themath simple, you're in the 10%
tax bracket, right?
I don't think there is a 10%tax bracket, but I'm going to
make it up because I don't wantto do math in my head on a
(25:21):
Monday, right?
So if you have to pay 10% taxeson that money before you can
access it, your $12,000 is notgoing to be $12,000, right, it's
going to be, you know,something less than 10 after
you've paid your taxes.
So it's not the same.
Speaker 1 (25:37):
And, in addition, if you pull that money before your
retirement age, you're going tohave an additional penalty.
Speaker 2 (25:42):
You absolutely will.
Speaker 1 (25:43):
So the present value of that money is going to be
less, and that is so incrediblyimportant, for what we do is
when we can show our clients aspreadsheet that has the true
present value of the money,especially when you have folks
that are going to need to accessthe money right now.
Absolutely, we need to havethose values, and that's
(26:03):
certainly where you and CDFAscan be very helpful.
So let's talk about planningand long-term outcomes.
What does your role look likethere?
Speaker 2 (26:13):
Yeah, absolutely.
And I'll open this part of thediscussion with the caveat that
not everybody needs long-termoutcome projection.
Some people just need that hereand now expertise, a little bit
of help around goal setting, alittle bit of help around
formulating an offer, right.
So a lot of times, my workstops there.
Every once in a while therewill be a client who cannot say
(26:34):
yes to any offer, no matter whatit is, and it's because they
have not answered the questionof am I going to be okay?
So if you can just if you andthe audience can put themselves
in the shoes of someone who'smaybe been a stay-at-home parent
for 20 years.
They don't have job skillsright now.
They have maybe a $4 millionestate, and I know that seems
(26:55):
like a lot of money, but whenyou take $4 million and you turn
it into two and you're 50 yearsold and you don't know if
you're going to be able to goback to work, that's a lot of
question marks, right?
So one of the things that we cando is we can go through a
financial planning process withthe client, and then the
question is always well, what doyou assume about the inputs?
(27:15):
And what I assume about theinputs is whatever offer is on
the table.
So we'll say to the clientthese are the goals you've said.
You said you would like to nothave to go back to work.
If you don't have to, you'dlike to be able to provide this
amount of income for yourselfevery year.
You believe you're going tolive to about this age.
That's always a key assumption.
Longevity, because planning forretirement to 100 versus
(27:38):
planning for retirement to 85are two different animals.
And these are the resourcesthat we believe you'll have
available to you.
And what we do is we drop thatinto some financial planning
software.
We use MoneyGuide Pro.
It's not magical.
It's underpinned by the sametechnology that underpins all
financial planning software andit allows us to answer that
(27:58):
question of based on theresources I have and the goals
that I've set are important tome, do I have a reasonable
probability of reaching thosegoals?
And if the answer is yes,oftentimes the client will be
able to then walk into mediationand say yes to an agreement.
If the answer is no, it givesus the opportunity to start
managing some expectations andsaying what do we need to adjust
(28:19):
about your post-divorce goalsso that you can say yes?
Because you know this,oftentimes, the settlement will
be what the settlement will be.
There's no amount of financialplanning that is going to cause
someone to say, oh, I would loveto give you 55% of our family
estate, right?
Speaker 1 (28:37):
Well, and it's so incredibly important to set the
foundation for our clients andthe settlement might be what
settlement's going to be, butthere's a big difference between
them walking in and feelingconfident that they're going to
know that they're going to beokay for the next year, three
years, five years, however long,maybe until retirement, and
(28:58):
that really helps us out so thatwe can do our jobs.
So how do you get your clientsto look towards the future?
How do you get themfuture-oriented?
Speaker 2 (29:09):
Yeah, it really goes back to that goal setting that I
talked about at the beginning.
So I said I can come in and Ican do the inventory and
appraisement, but also I'm goingto be thinking about goal
setting and this is where Ithink having a good
understanding of what we callbehavioral finance it's the
study of how people behave withmoney.
It's really, really helpful,because the reason I like to do
(29:33):
goal setting is because when Isee the client start to have
tunnel vision, when I see themgetting very wrapped up in the
minutiae of here and now, thingsthat in the long run aren't
important, I have two options.
I can say that's really notimportant.
I don't know why you'refocusing on this.
This is not helping you, I'lltell you.
Most of the time that doesn'twork.
(29:54):
What is much more useful is tosay you know, back when we
started this process, you toldme that one of your key goals
was to make sure that you couldco-parent successfully because
you have young kids together,and I just want to make sure
that we're still keeping thatgoal front and center right.
When we first started this worktogether, one of the things you
told me that was reallyimportant to you is that you be
(30:14):
able to have a year to reorientyourself and get back to school
and get some job training, and Iwant to make sure that we're
focusing on that and not thisother thing, that and not this
other thing.
So, always going back to whatare the goals we talked about
and is what we're doing rightnow serving those goals, and
that really, really helps aclient stay future oriented,
(30:35):
because you know this, you'vedone many of these cases.
Getting tunnel vision is theeasiest thing.
It's so easy to focus on thatlast thing that my soon to be ex
did.
That just made me so mad andit's a distraction.
Speaker 1 (30:48):
Yeah, okay, sarah.
So who needs a CDFA or whoshould consider hiring one?
Speaker 2 (30:54):
Yeah, that's the million dollar question, right.
And I'll start by saying noteveryone needs one, right?
Not every single case needs theextra expertise, and I'm just
going to refer down to a fewnotes I had here.
So here's when you need toreally think about hiring
someone is you know?
Do I understand what's in myestate?
Do I understand the assets?
Do I understand the debts?
If you can't say yes to that,maybe think about a CDFA.
(31:16):
The next one would be do Iunderstand the settlement offer?
Right?
Maybe you understand the estatebut the settlement offer
doesn't make sense.
Then you need to start thinkingabout hiring an expert.
Do I understand the potentialtax consequences of the
settlement offer that's on thetable?
And then, and this is reallykey, do I feel confident, right?
Do I feel confident that I'mmaking a good choice?
(31:37):
If you don't feel confident, ifyou don't understand what's
happening, if there's any doubtin your mind and your attorney
isn't able to satisfy thosedoubts, consulting with a CDFA
makes a ton of sense, and maybeit is just a one-hour
consultation, or maybe you doend up hiring, but it really
comes down to do I feelconfident about the financial
elements of the case?
Speaker 1 (31:57):
And I would certainly say, whenever there is a more
complex estate that does involverestricted stock units ESOP,
sep, iras, iras, more complex401k planning it's always
helpful to have a financialexpert, and particularly
somebody with experience indivorce cases.
There's a lot of CFPs out thereand having somebody that has
(32:21):
some expertise in divorce andhow we can guide people through
that process and knows how towork with a divorce attorney,
knows a bit about our process,is always really helpful.
Speaker 2 (32:32):
Yeah.
Speaker 1 (32:33):
So tell me I'm curious to hear your answer to
this when should they hire?
When should somebody hire aCDFA?
Speaker 2 (32:41):
In my opinion, the day after they hire the divorce
attorney, Okay.
But that doesn't always happenright and the fact of the matter
(33:10):
is is that you can bring a CDFAinto your case at the beginning
, in the middle or even afteryour case has settled, because
sometimes there you go in for aconsultation with is honest with
you and tells you, yes, youreally do need the help or no,
you don't.
Hopefully your attorney has agood relationship with a CDFA
that they can just pick up thephone and call, and this has
happened before.
I've had you, I've hadattorneys in your practice call
me and say I just have aquestion.
I've had you.
I've had attorneys in yourpractice call me and say I just
have a question.
And you know, if there's a goodrelationship there, I'm always
(33:31):
happy to spend 15 minutesanswering a question If for no
other reason than I really careabout people getting good
outcomes.
Speaker 1 (33:39):
And I know there have been numerous cases where we've
referred somebody to you andyou know, Sarah, talk to them,
see if they need your help, andthat you've come back, or
they've come back to us and it'slike it's just not right.
We don't, you don't feel righthaving them spend the money on
something that they don't need,which is always very much
appreciated and one of thereasons that we like working
(34:02):
with you.
So tell me, what does yourprocess look like if somebody is
going to hire you?
Speaker 2 (34:07):
Yeah, absolutely so.
One of the things that I thinkis important is that they have
an opportunity to sit with meand answer as many questions as
I can answer within an hourwithout having to worry that I'm
going to charge them for thatprivilege, right?
I know from personal experiencedivorce is a very
(34:29):
resource-intensive process withrespect to time and with respect
to money.
So I offer every singlepotential client a free one-hour
consultation, and the point ofthat consultation is for me to
get a good understanding of theelements of their case.
Give them an opportunity to getto know me, ask all the
questions they need to ask aboutme and how I work.
At the end of that, I'll letthem know whether or not I think
I'm a candidate.
If I'm not, I'll say so.
If I think I'm a good candidate, I'll make sure they have a
(34:50):
good understanding of what it'slikely to cost, what their
obligations as a client would beand what it would take to start
the process.
And then after that, Iessentially back away and allow
them to take the time they needto decide if they want to hire
me.
And you know what?
It might take 24 hours, itmight take a few weeks.
In some cases it's taken twoyears.
(35:13):
So I always say my door will beopen to you whenever you decide
you're ready or when you decideyou feel you need me.
Speaker 1 (35:22):
And I know, once you are hired, we've had cases where
you've come to mediation.
You've been available formediation and that's really
driven by the attorney and bythe client about how much
they're going to be utilizingyou.
And if they don't need you forsomething then you know that's
okay, but you're going to beavailable.
Speaker 2 (35:45):
I mean, the mantra is I do not want you to spend
money that you do not need tospend, right?
So you call me when you need me.
I'll do the scope of work thatwe've agreed to, and I'm not
going to encourage you to insertme where I am not needed.
I am not the center of thisprocess.
I am a supporting role in thisprocess.
Speaker 1 (36:10):
Well, Sarah, as we wrap up, tell us how can folks
find you?
Speaker 2 (36:12):
How can they learn more about your services online?
Well, I'm super easy to findyou.
Just go to sarahcuddycomS-A-R-A-H-C-U-D-D-Ycom, or you
can Google search Sarah Cuddy,and there's a lot of information
there.
And for folks who are stilltrying to get themselves
oriented and educated, I do havea blog.
It's called Graceful Exits andthat is my divorce blog, and
there's dozens and dozens ofposts on all sorts of divorce
(36:35):
topics.
For folks who are interested ina consultation, there's a
contact form on my website.
They can fill that out.
We usually get back to you inabout 24 hours, so you could
also just call me.
I do pick up my phone.
Speaker 1 (36:51):
Okay, and how do they do that?
Speaker 2 (36:53):
Yeah, so that the number there is 713-296-8005.
And there's also email.
It's scuddy at rwbearcom.
All of those details are on thewebsite.
I'm also on Facebook andLinkedIn if you want to stalk me
for a little bit and kind ofsee what I'm all about.
But it's generally pretty easyto get a hold of me.
Speaker 1 (37:14):
Oh great.
Well, thanks for joining us.
You know it's always.
Having you on our cases is justa wonderful value added service
for our clients and gives themthe peace of mind to know that,
like you said that the mainquestion people want to know is
am I going to be okay?
Like you said, the mainquestion people want to know is
am I going to be okay?
And having a team of experts isjust incredibly valuable, and
(37:35):
we always enjoy working with you, and our clients do as well.
So thanks.
Speaker 2 (37:46):
So the audience know that I am a financial advisor
employed by Robert W BairdCompany.
I do not give tax or legaladvice and Baird does not give
tax or legal advice.
All right.
Speaker 1 (37:59):
Very good If anybody is looking for legal advice on a
family law case, particularlyin the greater Houston area.
You can see more about Hunt LawFirm at familylawyerkdcom.
We have a wealth of informationin our blog.
You can see past episodes ofour podcast there.
We have explainer videos andmore.
(38:19):
That's familylawyerkdcom, anduntil next time, this is the
Texas Family Lawyer Podcast.
We'll see you next time.
Hi and welcome to the Texas Family Lawyer Podcast.
My name is Alex Hunt.
I'm the managing attorney atHunt Law Firm, with offices in
Katy, Sugar Land, Cypress andLeague City, and I'm very
excited today to be joined by mygood friend and colleague,
Sarah Cuddy.
Sarah is a certified divorcefinancial analyst and we've
(00:29):
worked numerous cases together.
She provides an incredibleservice for us, so welcome,
Sarah.
Speaker 2 (00:36):
I'm so happy to be here.
Speaker 1 (00:37):
Thanks for inviting me, of course, of course.
So we're just going to jumpright in.
Let's talk a little bit todayabout what a certified divorce
financial analyst, or CDFA, isand what you do.
Speaker 2 (00:50):
Yeah.
So in a nutshell, a CDFA, acertified divorce financial
analyst is an expert in theintersection of family law and
money.
It's very important to makeclear to the audience we're not
attorneys, we're not trainedattorneys.
Most of us most of us arefinancial professionals, but
where we fit in the case ishelping clients make sense of
(01:12):
maybe a more complex estate orhelping their attorney and them
make some of the really keyfinancial decisions that they're
going to be making in a divorcewhen they're dividing up
communities.
Speaker 1 (01:22):
Okay and I know we've definitely relied on you for
that and we've had some reallyintricate cases and complicated
cases and it's beenextraordinarily helpful.
So what makes a CDFA distinct?
I know that you also have someother initials behind your name,
but tell us about CDFA and whatmakes that special.
Speaker 2 (01:43):
So it comes down to some specialized training.
So a CDFA is going to havetraining in essentially three
modules, right, they're going tohave the financial issues of
divorce, they're going to havethe tax issues of divorce and
then they're going to have thefundamentals of divorce.
So they've had these threemodules that they've had to
(02:03):
study and pass a test on.
And then, after they've passedthose three module tests, they
then need to take kind of whatyou would think of as a capstone
, right, it's a case study-basedtest that they need to pass.
And then there's also ongoingeducation.
So, versus maybe a financialadvisor who is a certified
(02:24):
financial planner yes, they knowa lot about finance, they know
a lot about retirement plans,but what they're missing is that
special training in divorce lawDoes that make sense.
Speaker 1 (02:35):
It does, so tell me.
This is a very niche area offinancial planning.
What's your background?
What got you interested in that?
Speaker 2 (02:43):
Yeah, planning.
What's your background?
What got you interested in that?
Yeah, well, when I firstdecided to pursue the CDFA
designation, I was alreadyworking with women who were
transitioning in thatpost-divorce phase and a mentor
of mine at Baird had said to meyou know, you'd be really good
at this work.
I really think you shouldpursue the designation.
(03:03):
And I thought to myself thismakes sense.
We all know that when you havea niche you tend to be more
successful.
And what really prompted me toget charged up about being a
certified divorce financialanalyst was going through my own
divorce.
So I remember how confusing andscary and stressful that time
(03:26):
was.
And that was as someone who wasa financial advisor who was
very much in control of her ownfinances.
Speaker 1 (03:32):
And I said to myself you know if I'm, if it was this
hard for me, how much harder,how much more confusing, how
much more stressful must it befor someone who doesn't have the
experience and I know that whenwe first met, you just had
received the certified divorcefinancial analyst credential and
then you've since added thecertified financial planning
(03:53):
credential, and I think it'sreally important because you
know, after the divorce is over,you could potentially stay with
clients for the long term.
So you're looking at a longterm solution.
You're looking at what do Ineed in order to be successful
and then also I'm going to stay.
You know you're going to staywith them throughout.
You know the process, help theminvest, help them make proper
(04:16):
financial decisions.
So you talked a little bitabout what it takes to become a
CDFA.
Tell me a little bit more.
Is there ongoing training?
What kind of training does thatentail?
Speaker 2 (04:27):
That's a really good question.
So, as with most designationsand certifications, you need to
have some component ofcontinuing education.
So the Institute for DivorceFinancial Analysts, which is who
issues the CDFA designation,says every two years you need to
complete at least 15 hours ofcontinuing education.
Now, in my opinion, that'sactually a pretty low bar.
Speaker 1 (04:49):
Isn't it?
Speaker 2 (04:50):
Right, and what I have found has really helped me
keep my skills fresh is bycommitting to a once-monthly
blog post on some technicaltopic related to divorce,
because what it does is itforces me to stretch myself and
actually do some research.
A really great example is thatI had an incredibly long article
(05:11):
which is not meant to be readstart to finish, on retirement
accounts and divorce, and itcaused me to say, well, actually
, how does this work?
Because I certainly, in myworking time as a CDFA, have not
seen absolutely every type ofretirement account, so it forced
me to research and to go askother experts and to really form
a more solid understanding.
(05:31):
So, yes, I'll do the 15 hoursas required, but I do find that
you really do need to stretchyourself.
And I just want to circle backto having that dual designation,
having that CDFA plus CFP.
Being a CFP, a certifiedfinancial planner professional
definitely helps me be more fitfor the client post-divorce, no
(05:52):
question, but it also helps mebe more fit than the average
CDFA during the divorce.
Speaker 1 (05:57):
Tell me more about that.
Speaker 2 (05:58):
Well, the CDFA training, honestly, is a little
surface level.
Right, it's a designation thatyou can complete in about three
months if you're a good studierand a good test taker which I am
right but it doesn't give youevery single tool you need,
(06:20):
maybe hiring a certified divorcefinancial analyst.
You also want to consider dothey have other relevant
designations that are going tohelp make them a more complete
solution versus somebody whojust has the CDFA?
Maybe they don't have a ton ofexperience, Maybe they don't
have other designations.
Speaker 1 (06:37):
Okay, and I know for us it's important to work with a
lawyer that's worked with theCDFA as well.
I don't know what yourexperience is with that, but we
know what you can do, we knowwhat you can't do.
You know what we can do andwhat we're what we maybe can do
but we are not the best at so.
(06:57):
You know, we're great in thecourtroom, we're great with
discovery, we're great withpretrial litigation and we can
certainly help with finances,but to bring a financial expert
on board is always somethingthat helps our cases and really
it's something that helps givepeace of mind to our clients.
We were talking just before theshow is that you actually are
(07:17):
working on a case of ours withanother attorney, melissa
Massoum.
She's in mediation today, andso I know that you're on call.
Another attorney, melissaMassoum.
She's in mediation today, andso I know that you're on call
and that's something that you dois.
You might not necessarily go tomediations, but you're on call
in case some advice is needed.
Some guidance is needed.
Speaker 2 (07:35):
Absolutely, and it happens often right.
One of my goals as a CDFA, onany case, is to get the attorney
client team so confident intheir understanding of the
estate and what will and won'twork for the client that they
don't need me to be in the room.
But it almost always happensthat a question will come up
(07:55):
that they weren't anticipating,that we couldn't anticipate, and
it's just a quick 10-minute,15-minute phone call.
Sometimes it's hey, let meemail over the current version
of the settlement, lay eyes onit and tell me what you think.
And that can be the differencebetween reaching an agreement
that day versus having to comeback and mediate a second time.
Speaker 1 (08:16):
Yeah.
Speaker 2 (08:16):
So one of the most important things that I can do
for a client is help them reachan agreement more quickly that
they feel confident about, notan agreement they've been forced
into, but one that they feelreally good about, rather than
endless rounds of discovery andmediation.
Speaker 1 (08:31):
One of the things that I often say is the
uninformed mind says no.
So one of the reasons that Iencourage folks that are on the
other side of our case asopposing parties, that they
should get a lawyer, because ifthey don't know family law then
they're more likely to just sayno.
But if our clients and theother side feel that they have
(08:52):
all of the knowledge andfoundation set out in front of
them, then they have theconfidence to then say yes to a
mediation and potentially avoidcourt, which is less expensive,
less stressful.
It's just an overall bettersolution.
So we've set the foundation forthis conversation.
(09:13):
Tell me some of the things thata CDFA can help attorneys
family law attorneys and helpfamily law clients with.
Speaker 2 (09:22):
Yeah Well, let's start with the beginning in mind
.
Family law clients with yeahWell, let's start with the
beginning in mind.
Depending on the practice anddepending on the attorney,
sometimes making thatspreadsheet, the inventory of
assets and liabilities, that isliterally their worst nightmare.
So I can certainly take thatoff of somebody's plate.
(09:43):
Oftentimes, though, where I'mcoming in on a case, it's going
to be with, maybe, valuation andalso helping untangle maybe
some more complicated assets.
So, for example, let's say thatwe have, you know, a husband,
wife, wife has stayed home,maybe raised kids.
Husband's a highly compensatedexecutive, say, at an oil and
gas company.
This is Houston, katy, afterall, we have a lot of folks in
(10:04):
oil and gas, and oil and gasoften means complex executive
compensation schemes with mayberestricted stock or
non-qualified stock options or,you know, unvested stock or
pension plans.
We don't see those every day,and they can be very tricky to
(10:25):
value.
What is this thing worth,especially pensions that don't
have some sort of lump sumpayout.
It's just the stream of futurepayments, right, and unless the
parties are willing to justdivide those future payments
straight down the middle, you'regoing to have to put a value on
it in order to put it on thespreadsheet in order to put it
in one person's column.
Speaker 1 (10:45):
Absolutely, and just not to cut you off, but this is
a perfect example of somethingthat family law attorneys not
the best at, not the experts in,and so this is where we call
upon folks that know how to dothis to help us out.
Speaker 2 (10:59):
Absolutely, and you know, and it's just the fact
that this is not what you guysare trained for.
You all are legal experts,Right?
And I'm glad that this iscoming up, because sometimes
clients will make the mistake ofasking their CDFA a legal
question, and so I am foreverreminding clients that I am not
(11:20):
an attorney.
I cannot weigh in on legalprocess or what their legal
rights are, and that's where itgets really tricky working in a
process where there is so muchentanglement.
So, yeah, things like valuingpensions, things like untangling
, you know, complicated stockschemes, the other thing that
(11:40):
comes up and it actually comesup in this case that is
hopefully settling this week isokay, we have all of this
employer stock and it's held inall of these different plans.
But I'm the one in the roomsaying but is it transferable?
Can this actually move fromhusband's name to wife's name?
Because one of the big pitfallsof dealing with a highly
(12:03):
complicated estate is you mayreach an agreement that you
literally can't implement, andthat's not good for the client,
certainly, and it's certainlynot good for you guys because
you'll have to go back and fixit later.
So having a CDFA on board whenthere's complexity can save time
, money, frustration,consternation, and it can help
(12:24):
you get to an agreement.
Maybe, we hope, a little faster.
Speaker 1 (12:27):
And one of the reasons just to remind clients
or prospective clients it's oneof the reasons that we encourage
them to do discovery writtendiscovery is to get those
documents so that way we and youcan analyze them and get that
legalese that we can dig ourhands into to see if the
(12:48):
solutions are even able to beimplemented.
And I know that we had a casewhere there was a couple of
annuities and you might not evenrecall this, but there was a
couple of annuities involved andI remember you dug into the
details and we decided which ofthose annuities was going to be
in our client's best interest totake.
(13:09):
And so one spouse got one, onegot the other and it just worked
out better that she was goingto receive the annuity that paid
out a little bit earlier.
She was a stay-at-home parentand could have used that cash
flow a little bit earlier thanher husband who was working and
had an established career.
So little things like that,that on paper might not show
(13:29):
through, but once you get intothe nitty gritty it matters to
our clients.
One of the things you mentionedwas an inventory and
appraisement and folks might notbe familiar with what that is.
Can you explain?
I mean it's very importantfoundation of trying to reach a
settlement or a court.
Tell us a little bit about whatan inventory and appraisement
(13:50):
is.
Speaker 2 (13:51):
Yeah, well, in every case, you're trying to reach an
agreement about if you havekiddos, the kid stuff right, and
that you can't do on aspreadsheet.
But you also have to decide whatdo you own as a couple, what do
you owe as a couple in terms ofdebts and what is outside of
the community and you might wantto talk a little bit about
(14:11):
Texas being a community propertystate but we have to have a
list of everything that you own,everything that you owe, and we
have to know what it's worth.
And that's what we call theinventory and appraisement.
Most people just use a simpleExcel spreadsheet.
I use a highly complex anddetailed Excel spreadsheet,
which I know is famous in youroffice, and the reason I have
(14:35):
that level of detail andcomplexity is because when you
guys are drafting the decree, Iwant you to have at your
fingertips every piece ofinformation that you'll need,
and I also find that when I'mhelping folks make decisions,
the more details I have, thebetter my work product is.
So an inventory andappraisement sounds fancy.
All it is is a list ofeverything you own, everything
you owe and what is it worth,and this is the working document
(14:57):
that you and the clients willuse during settlement
negotiations.
Speaker 1 (15:02):
Absolutely, and in those negotiations it's really a
living, breathing document atthat point, in that we'll have
columns for husband, wife or, ifit's the same-sex couple, each
of the partners and we'll movethings into the different
columns.
We'll have percentages at thebottom and it will help us
determine whether it's a justand fair division of assets.
(15:22):
So we talked a little bit aboutdividing assets as something
that a CDFA can help with.
Tell me a little bit more aboutvaluing assets and what that
looks like.
Speaker 2 (15:31):
Yeah, Great question.
Most of the time we're justlooking at a statement, right?
So if it's a bank account, ifit's an investing account, if
it's an IRA, if it's a 401k, youjust look at the statement to
see what is it worth.
That's very straightforward.
You don't really need a CDFAfor that.
But let's say that you havesomething that isn't as
(15:52):
straightforward pensions and wetalked about this a little while
ago.
Pensions can sometimes youvalue that, right?
You're not going to put $2,000on the spreadsheet, so in that
case, a CDFA will come in andwe'll do a calculation.
(16:21):
It's going to sound so fancy.
Present value of future cashflows.
This is the calculation we do.
It actually could be done on aspreadsheet with I think it's
five inputs To me.
Doing a present value of futurecash flows calculation is
incredibly intuitive.
I did probably thousands ofthem in my finance class, but to
(16:42):
most people that's not anintuitive calculation, right?
Then you might have somethinglike a set of maybe
non-qualified stock options.
Well, what the heck are thoseworth?
What even is a non-qualifiedstock option?
So that's where you might comein and have a CDFA, do a set of
calculations to figure out whatthose might be worth.
The only other category that wetypically see are things like
(17:04):
restricted stock options Sorry,restricted stock units, All of
these acronyms and all of theserestricted things.
But what you might have is astatement that shows a certain
value, and some of thoserestricted stock units are
vested, meaning they're owned bythe person, and some might be
(17:25):
unvested, meaning they're notyet owned by the person and they
could be forfeited for whateverreason.
And that's when you want tohave a CDFA come in and look at
that statement and say this iswhat's actually subject to
division, and this is what wecan't divide because we don't
even own it yet.
Speaker 1 (17:44):
And the RSUs, the restricted stock units, are
something that, especially beingin a big city, being in a big
oil and gas city, as we see, alot of restricted stock units
are something that oil and gascompanies you often see that as
part of a retirement plan.
So it's always helpful to havea financial expert to help us
out in valuing those and, likeyou said, just telling us
(18:05):
whether that's something that'seven divisible right now.
And those are conversationsthat we have usually behind the
scenes or before a mediation anddetermining what our first
offer is going to be.
Absolutely so that's valuation.
Tell me a little bit more.
We talked a little bit aboutdivision, but what specifically
(18:26):
are some things that you willprovide advice on or the
conversations that you have withclients?
Speaker 2 (18:32):
With respect to division.
So the very first thing I wantto know from the client is talk
to me about what your firstcouple years after the divorce
need to look like.
And this is a huge blind spotfor so many clients, because
they get tunnel vision.
All they can think about islet's just get this case settled
.
I don't care, I just need asettlement.
And I see clients sometimesfail to take into account what
(18:56):
comes next and they end up witha settlement that doesn't serve
them.
So the very first conversationI'm having is around goals,
right.
And then I need to understandtheir ability to earn income and
support themselves post-divorceso that I can help them craft
an offer that will set them upfor success post-divorce.
So one horror story and this wasnot a case from your firm, but
(19:18):
we had a client who was awardednothing but retirement assets
and she wasn't old enough tostart tapping into those
retirement assets without apenalty and one of her primary
post-divorce goals was to buy ahouse.
Okay, so now we have assets wecan't touch, we don't have any
cash, and she really, reallywants to buy this house and we
(19:41):
had to bend ourselves intopretzels to make it happen and
we did, but had we had that goalin mind when crafting the
settlement agreement, thingsmight have gone differently.
So that's always number onewhat do you want your life to
look like after the divorce?
The next thing I'm going to belooking at is what asset is most
advantageous for each party.
(20:03):
So a good example would be wehave a high earning spouse and a
lower earning spouse, right,and the lower earning spouse is
going to need access to assetsfor at least a couple of years
just to get themselves back ontheir feet.
In that case, I'm looking totake anything that's not sitting
in a retirement account,anything that doesn't have
strings attached, and sending itto the lower earning spouse,
(20:27):
and I want anything sitting in aretirement account that's
currently not being taxed andwon't be taxed for a long time.
I want that to go to the higherearning spouse.
This is a win-win Lower earningspouse gets access to liquid
assets.
Higher earning spouse gets tokeep a hold of the things that
are currently tax deferred,which gives them a better tax
picture.
Speaker 1 (20:47):
And that's something that we run into often,
especially out in Haiti, whereour primary offices you will
have a primary breadwinner.
You will often have a parentthat stays at home, and that
parent that has stayed at homefor sometimes five, 10, 15 years
will need a little bit ofrunway in order to get their
(21:09):
career off the ground, and sohaving that liquidity is
something that allows them therunway in order to get some
training, go back to college andget their professional career
off the ground.
So tell us a little bit aboutyou know.
One thing that we run into isthat when you have, say, a
(21:34):
retirement account, you have abrokerage account, is that there
are different tax consequences,and this is something that
we'll often look to you for.
I know that you don't providetax advice, but we certainly
have conversations about it.
Tell us about the taxconsequences of some of these
and how that can play anincredibly important role.
Speaker 2 (21:57):
Yeah, absolutely so.
I'll kind of go back to myexample from a few moments ago,
when we talked about the womanwhose divorce settlements gave
her only retirement assets, butshe really wanted to buy a house
right.
I mean the tax consequences ofdrawing out of a retirement
account before you're age 59 anda half, and that's the tax law
says.
If you tap it before 59 and ahalf, you're going to pay taxes,
(22:20):
ordinary income, just like youwould with a regular
distribution, but you're goingto pay another 10% penalty.
I mean, and depending on yourtax bracket, that could be a 30%
40% bite that comes out of thatasset right out of the gate.
So there are some prettymeaningful impacts and
consequences if you don't planthis thing carefully.
So one of the things we can dois we can look at the post-tax
(22:46):
value of any given asset in thehands of one spouse versus
another.
That can sometimes give usinsight into what's going to be
most valuable.
Speaker 1 (22:56):
And what you mean there is you have a higher
earning spouse, they might be ina higher tax bracket, and you
have a spouse that maybe isn'teven earning any income, they're
going to be a lower tax bracket.
So more money is going to UncleSam if a certain asset is given
and pays out to a higher earner, correct?
Speaker 2 (23:16):
And you know what?
One thing we don't run into asmuch is with, say, brokerage
accounts only because capitalgains taxation, the 15% bracket
is very wide.
I want to say the 15% bracketstarts at $80,000 in ordinary
income and ends at about$450,000.
So oftentimes we see bothspouses are sitting inside the
(23:38):
same capital gains tax bracket.
Speaker 1 (23:40):
Okay.
Speaker 2 (23:41):
It's really retirement accounts.
Okay, retirement accounts, whenyou take money out, are taxed
like ordinary income.
Speaker 1 (23:47):
In those brackets you could have one spouse that's in
the I don't know 12% bracketand another spouse in the 24%
bracket, and now we have a hugedelta right between those two,
and one of the things that I'veencountered is you'll have an
opposing counsel or maybesomebody that's not
knowledgeable about the way thistax impacting works, and you'll
(24:11):
have on a spreadsheet theinventory.
You'll have $12,000 that'ssitting in a savings account,
yep, and then you'll have$12,000 that's sitting in a 401k
, a traditional 401k that hasnot been taxed yet, and on a
spreadsheet you have 12,000 and12,000.
One's going to husband, one'sgoing to wife, and it looks like
(24:31):
a 50-50 split, but in realityit's not Not the same.
Tell me a little bit about whynot.
Speaker 2 (24:38):
Okay.
So if you have $12,000 sittingin a bank account and you take
that $12,000 out and you spendit, you get to spend all $12,000
and you have zero taxes due.
Now I am going to, becauseBaird would be angry if I didn't
, but I am going to point out ifyou have interest income on any
of that, you're going to paytaxes on the interest.
Okay, but that's pay as you go.
(24:59):
Okay, but $12,000 in a bank is$12,000.
$12,000 in a 401k is not$12,000.
It's $12,000 before you paytaxes.
So let's say, just to keep themath simple, you're in the 10%
tax bracket, right?
I don't think there is a 10%tax bracket, but I'm going to
make it up because I don't wantto do math in my head on a
(25:21):
Monday, right?
So if you have to pay 10% taxeson that money before you can
access it, your $12,000 is notgoing to be $12,000, right, it's
going to be, you know,something less than 10 after
you've paid your taxes.
So it's not the same.
Speaker 1 (25:37):
And, in addition, if you pull that money before your
retirement age, you're going tohave an additional penalty.
Speaker 2 (25:42):
You absolutely will.
Speaker 1 (25:43):
So the present value of that money is going to be
less, and that is so incrediblyimportant, for what we do is
when we can show our clients aspreadsheet that has the true
present value of the money,especially when you have folks
that are going to need to accessthe money right now.
Absolutely, we need to havethose values, and that's
(26:03):
certainly where you and CDFAscan be very helpful.
So let's talk about planningand long-term outcomes.
What does your role look likethere?
Speaker 2 (26:13):
Yeah, absolutely.
And I'll open this part of thediscussion with the caveat that
not everybody needs long-termoutcome projection.
Some people just need that hereand now expertise, a little bit
of help around goal setting, alittle bit of help around
formulating an offer, right.
So a lot of times, my workstops there.
Every once in a while therewill be a client who cannot say
(26:34):
yes to any offer, no matter whatit is, and it's because they
have not answered the questionof am I going to be okay?
So if you can just if you andthe audience can put themselves
in the shoes of someone who'smaybe been a stay-at-home parent
for 20 years.
They don't have job skillsright now.
They have maybe a $4 millionestate, and I know that seems
(26:55):
like a lot of money, but whenyou take $4 million and you turn
it into two and you're 50 yearsold and you don't know if
you're going to be able to goback to work, that's a lot of
question marks, right?
So one of the things that we cando is we can go through a
financial planning process withthe client, and then the
question is always well, what doyou assume about the inputs?
(27:15):
And what I assume about theinputs is whatever offer is on
the table.
So we'll say to the clientthese are the goals you've said.
You said you would like to nothave to go back to work.
If you don't have to, you'dlike to be able to provide this
amount of income for yourselfevery year.
You believe you're going tolive to about this age.
That's always a key assumption.
Longevity, because planning forretirement to 100 versus
(27:38):
planning for retirement to 85are two different animals.
And these are the resourcesthat we believe you'll have
available to you.
And what we do is we drop thatinto some financial planning
software.
We use MoneyGuide Pro.
It's not magical.
It's underpinned by the sametechnology that underpins all
financial planning software andit allows us to answer that
(27:58):
question of based on theresources I have and the goals
that I've set are important tome, do I have a reasonable
probability of reaching thosegoals?
And if the answer is yes,oftentimes the client will be
able to then walk into mediationand say yes to an agreement.
If the answer is no, it givesus the opportunity to start
managing some expectations andsaying what do we need to adjust
(28:19):
about your post-divorce goalsso that you can say yes?
Because you know this,oftentimes, the settlement will
be what the settlement will be.
There's no amount of financialplanning that is going to cause
someone to say, oh, I would loveto give you 55% of our family
estate, right?
Speaker 1 (28:37):
Well, and it's so incredibly important to set the
foundation for our clients andthe settlement might be what
settlement's going to be, butthere's a big difference between
them walking in and feelingconfident that they're going to
know that they're going to beokay for the next year, three
years, five years, however long,maybe until retirement, and
(28:58):
that really helps us out so thatwe can do our jobs.
So how do you get your clientsto look towards the future?
How do you get themfuture-oriented?
Speaker 2 (29:09):
Yeah, it really goes back to that goal setting that I
talked about at the beginning.
So I said I can come in and Ican do the inventory and
appraisement, but also I'm goingto be thinking about goal
setting and this is where Ithink having a good
understanding of what we callbehavioral finance it's the
study of how people behave withmoney.
It's really, really helpful,because the reason I like to do
(29:33):
goal setting is because when Isee the client start to have
tunnel vision, when I see themgetting very wrapped up in the
minutiae of here and now, thingsthat in the long run aren't
important, I have two options.
I can say that's really notimportant.
I don't know why you'refocusing on this.
This is not helping you, I'lltell you.
Most of the time that doesn'twork.
(29:54):
What is much more useful is tosay you know, back when we
started this process, you toldme that one of your key goals
was to make sure that you couldco-parent successfully because
you have young kids together,and I just want to make sure
that we're still keeping thatgoal front and center right.
When we first started this worktogether, one of the things you
told me that was reallyimportant to you is that you be
(30:14):
able to have a year to reorientyourself and get back to school
and get some job training, and Iwant to make sure that we're
focusing on that and not thisother thing, that and not this
other thing.
So, always going back to whatare the goals we talked about
and is what we're doing rightnow serving those goals, and
that really, really helps aclient stay future oriented,
(30:35):
because you know this, you'vedone many of these cases.
Getting tunnel vision is theeasiest thing.
It's so easy to focus on thatlast thing that my soon to be ex
did.
That just made me so mad andit's a distraction.
Speaker 1 (30:48):
Yeah, okay, sarah.
So who needs a CDFA or whoshould consider hiring one?
Speaker 2 (30:54):
Yeah, that's the million dollar question, right.
And I'll start by saying noteveryone needs one, right?
Not every single case needs theextra expertise, and I'm just
going to refer down to a fewnotes I had here.
So here's when you need toreally think about hiring
someone is you know?
Do I understand what's in myestate?
Do I understand the assets?
Do I understand the debts?
If you can't say yes to that,maybe think about a CDFA.
(31:16):
The next one would be do Iunderstand the settlement offer?
Right?
Maybe you understand the estatebut the settlement offer
doesn't make sense.
Then you need to start thinkingabout hiring an expert.
Do I understand the potentialtax consequences of the
settlement offer that's on thetable?
And then, and this is reallykey, do I feel confident, right?
Do I feel confident that I'mmaking a good choice?
(31:37):
If you don't feel confident, ifyou don't understand what's
happening, if there's any doubtin your mind and your attorney
isn't able to satisfy thosedoubts, consulting with a CDFA
makes a ton of sense, and maybeit is just a one-hour
consultation, or maybe you doend up hiring, but it really
comes down to do I feelconfident about the financial
elements of the case?
Speaker 1 (31:57):
And I would certainly say, whenever there is a more
complex estate that does involverestricted stock units ESOP,
sep, iras, iras, more complex401k planning it's always
helpful to have a financialexpert, and particularly
somebody with experience indivorce cases.
There's a lot of CFPs out thereand having somebody that has
(32:21):
some expertise in divorce andhow we can guide people through
that process and knows how towork with a divorce attorney,
knows a bit about our process,is always really helpful.
Speaker 2 (32:32):
Yeah.
Speaker 1 (32:33):
So tell me I'm curious to hear your answer to
this when should they hire?
When should somebody hire aCDFA?
Speaker 2 (32:41):
In my opinion, the day after they hire the divorce
attorney, Okay.
But that doesn't always happenright and the fact of the matter
(33:10):
is is that you can bring a CDFAinto your case at the beginning
, in the middle or even afteryour case has settled, because
sometimes there you go in for aconsultation with is honest with
you and tells you, yes, youreally do need the help or no,
you don't.
Hopefully your attorney has agood relationship with a CDFA
that they can just pick up thephone and call, and this has
happened before.
I've had you, I've hadattorneys in your practice call
me and say I just have aquestion.
I've had you.
I've had attorneys in yourpractice call me and say I just
have a question.
And you know, if there's a goodrelationship there, I'm always
(33:31):
happy to spend 15 minutesanswering a question If for no
other reason than I really careabout people getting good
outcomes.
Speaker 1 (33:39):
And I know there have been numerous cases where we've
referred somebody to you andyou know, Sarah, talk to them,
see if they need your help, andthat you've come back, or
they've come back to us and it'slike it's just not right.
We don't, you don't feel righthaving them spend the money on
something that they don't need,which is always very much
appreciated and one of thereasons that we like working
(34:02):
with you.
So tell me, what does yourprocess look like if somebody is
going to hire you?
Speaker 2 (34:07):
Yeah, absolutely so.
One of the things that I thinkis important is that they have
an opportunity to sit with meand answer as many questions as
I can answer within an hourwithout having to worry that I'm
going to charge them for thatprivilege, right?
I know from personal experiencedivorce is a very
(34:29):
resource-intensive process withrespect to time and with respect
to money.
So I offer every singlepotential client a free one-hour
consultation, and the point ofthat consultation is for me to
get a good understanding of theelements of their case.
Give them an opportunity to getto know me, ask all the
questions they need to ask aboutme and how I work.
At the end of that, I'll letthem know whether or not I think
I'm a candidate.
If I'm not, I'll say so.
If I think I'm a good candidate, I'll make sure they have a
(34:50):
good understanding of what it'slikely to cost, what their
obligations as a client would beand what it would take to start
the process.
And then after that, Iessentially back away and allow
them to take the time they needto decide if they want to hire
me.
And you know what?
It might take 24 hours, itmight take a few weeks.
In some cases it's taken twoyears.
(35:13):
So I always say my door will beopen to you whenever you decide
you're ready or when you decideyou feel you need me.
Speaker 1 (35:22):
And I know, once you are hired, we've had cases where
you've come to mediation.
You've been available formediation and that's really
driven by the attorney and bythe client about how much
they're going to be utilizingyou.
And if they don't need you forsomething then you know that's
okay, but you're going to beavailable.
Speaker 2 (35:45):
I mean, the mantra is I do not want you to spend
money that you do not need tospend, right?
So you call me when you need me.
I'll do the scope of work thatwe've agreed to, and I'm not
going to encourage you to insertme where I am not needed.
I am not the center of thisprocess.
I am a supporting role in thisprocess.
Speaker 1 (36:10):
Well, Sarah, as we wrap up, tell us how can folks
find you?
Speaker 2 (36:12):
How can they learn more about your services online?
Well, I'm super easy to findyou.
Just go to sarahcuddycomS-A-R-A-H-C-U-D-D-Ycom, or you
can Google search Sarah Cuddy,and there's a lot of information
there.
And for folks who are stilltrying to get themselves
oriented and educated, I do havea blog.
It's called Graceful Exits andthat is my divorce blog, and
there's dozens and dozens ofposts on all sorts of divorce
(36:35):
topics.
For folks who are interested ina consultation, there's a
contact form on my website.
They can fill that out.
We usually get back to you inabout 24 hours, so you could
also just call me.
I do pick up my phone.
Speaker 1 (36:51):
Okay, and how do they do that?
Speaker 2 (36:53):
Yeah, so that the number there is 713-296-8005.
And there's also email.
It's scuddy at rwbearcom.
All of those details are on thewebsite.
I'm also on Facebook andLinkedIn if you want to stalk me
for a little bit and kind ofsee what I'm all about.
But it's generally pretty easyto get a hold of me.
Speaker 1 (37:14):
Oh great.
Well, thanks for joining us.
You know it's always.
Having you on our cases is justa wonderful value added service
for our clients and gives themthe peace of mind to know that,
like you said that the mainquestion people want to know is
am I going to be okay?
Like you said, the mainquestion people want to know is
am I going to be okay?
And having a team of experts isjust incredibly valuable, and
(37:35):
we always enjoy working with you, and our clients do as well.
So thanks.
Speaker 2 (37:46):
So the audience know that I am a financial advisor
employed by Robert W BairdCompany.
I do not give tax or legaladvice and Baird does not give
tax or legal advice.
All right.
Speaker 1 (37:59):
Very good If anybody is looking for legal advice on a
family law case, particularlyin the greater Houston area.
You can see more about Hunt LawFirm at familylawyerkdcom.
We have a wealth of informationin our blog.
You can see past episodes ofour podcast there.
We have explainer videos andmore.
(38:19):
That's familylawyerkdcom, anduntil next time, this is the
Texas Family Lawyer Podcast.
We'll see you next time.
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