Certified AML and Fraud Professional (CAFP)

Correct: In a divorce planning context, especially when sharing live models with opposing parties, the integrity of the data is paramount. Granular access controls ensure that while an opposing party might view a scenario, they cannot alter the underlying financial assumptions—such as growth rates, tax bases, or cost-basis data—without authorization. Audit trails provide a chronological record of who accessed or changed data, which is essential for maintaining the reliability of financial information used in legal negotiations and ensuring that the bank’s data protection standards are met.

Incorrect: Calculating the time value of money is a functional feature of the software but does not address the data protection or integrity risks raised by the supervisor. Mobile application availability is a convenience feature and, while it has security implications, it is not as critical as the integrity of the shared legal financial model in a collaborative environment. Expert witness certification relates to the admissibility of the software’s output in court and the vendor’s reputation, rather than the internal data protection controls or the risk of unauthorized data modification during the planning phase.

Takeaway: When using collaborative divorce planning software, internal auditors must prioritize the validation of access controls and audit logs to ensure the integrity of financial models shared between adversarial parties.

Correct: The primary role of a CDFA in jurisdictional disputes is to provide a comparative financial analysis. Because community property states and equitable distribution states have fundamentally different rules regarding the characterization of property (especially commingled assets) and the valuation of intangible assets like professional goodwill, the CDFA must model the financial impact of both legal frameworks. This allows the client and their legal counsel to make an informed decision regarding the most financially advantageous venue for filing.

Incorrect: Moving assets to a different state does not necessarily change the law that will be applied to them, and doing so during a pending divorce can lead to legal sanctions or claims of dissipation of assets. The state where the marriage occurred does not dictate the laws of the divorce; rather, the state where the parties meet residency requirements and file for divorce governs the proceedings. Community property rules do not automatically override equitable distribution; in fact, equitable distribution is the standard in the majority of U.S. states and requires a specific judicial determination of fairness rather than a mandatory 50/50 split.

Takeaway: A CDFA must perform a comparative financial analysis of different jurisdictional laws to help clients understand how venue selection impacts the division of marital and separate property.

Correct: The valuation of a defined benefit pension is an actuarial process where the discount rate and mortality tables used can significantly swing the ‘present value’ used for trade-offs in a settlement. Conversely, defined contribution plans (like 401ks) have a clear account balance, but the individual bears the risk that the funds will be exhausted (longevity risk) or perform poorly in the market.

Incorrect: QDROs do not automatically convert pensions to lump sums; they must adhere to the specific rules of the plan, and many plans do not offer a lump-sum option. Private sector pensions are not legally required to provide COLA, and many do not, meaning inflation is a major risk. Roth and traditional accounts have different tax treatments (tax-free vs. tax-deferred), so an equal split of market value is not equitable on an after-tax basis.

Takeaway: CDFA professionals must distinguish between the actuarial complexities of valuing future pension streams and the market/longevity risks inherent in managing defined contribution account balances post-divorce.

Correct: In divorce proceedings involving multi-jurisdictional assets, the principle of lex situs dictates that the law of the jurisdiction where real property is located governs its characterization and division. Conversely, personal property (movables) is typically governed by the law of the state where the couple is domiciled at the time of the divorce. This distinction is critical for a CDFA to accurately project the financial outcomes of a settlement.

Incorrect: Applying the law of the forum state (where the petition is filed) to out-of-state real property is incorrect because courts generally lack jurisdiction to directly affect title to land in another state. Treating all assets as community property based solely on the primary residence ignores the specific legal requirements of the states where other properties are located. There are no federal guidelines for the division of marital assets, as domestic relations and property division are strictly within the purview of state law.

Takeaway: CDFA professionals must distinguish between the law of domicile for personal property and the law of situs for real property to accurately model asset division in multi-jurisdictional cases.

Correct: Healthcare costs historically rise at a rate significantly higher than the general Consumer Price Index (CPI). A CDFA must use a specific healthcare inflation rate to provide a realistic projection for a client’s long-term financial plan. Furthermore, assessing long-term care (LTC) needs is critical because standard health insurance and Medicare do not cover custodial care, which can be the largest financial drain in later years. Evaluating insurance gaps ensures the client’s settlement is sufficient to cover these specific risks.

Incorrect: Using the standard CPI is insufficient because medical inflation typically outpaces general inflation, leading to underfunded retirement plans. Relying on Medicare for custodial care is a common misconception; Medicare covers skilled nursing for short periods but not long-term custodial assistance. Relying exclusively on an HSA ignores the necessity of a comprehensive risk management strategy, as HSA balances may be depleted quickly by a single major health event or long-term care need without additional insurance or significant self-funding.

Takeaway: Accurate long-term healthcare planning in divorce requires using healthcare-specific inflation rates and addressing the gap between standard medical insurance and custodial care needs.

Correct: In divorce financial planning, the tax-adjusted value of an asset is more important than its face value. Because Traditional IRA distributions are taxed as ordinary income and Roth IRA distributions are generally tax-free, the Roth IRA is a more valuable asset on a dollar-for-dollar basis. Failing to account for this difference can lead to a settlement that appears equitable on paper but is significantly skewed once taxes are considered.

Incorrect: Transfers of IRAs incident to divorce are not subject to the 10 percent early withdrawal penalty if performed correctly as a trustee-to-trustee transfer. Liquidation is not required for the transfer of a Traditional IRA between spouses under Internal Revenue Code Section 1041. Both types of IRAs are considered retirement assets, and their liquidity depends on the age of the owner and specific plan rules, not a statutory classification as cash versus an annuity.

Takeaway: A Certified Divorce Financial Analyst must account for the future tax liabilities of different account types to ensure an equitable division of assets.

Correct: Under Social Security Administration rules, a divorced spouse can be ‘independently entitled’ to benefits if the marriage lasted at least 10 years and both parties are at least 62 years old. However, if the former spouse has not yet applied for benefits, the couple must have been divorced for at least two continuous years before the claimant can file. Since the client has only been divorced for 14 months and the ex-spouse has not filed, she must wait until the two-year mark.

Incorrect: The requirement that the former spouse must be actively receiving benefits only applies if the divorce has been final for less than two years; after two years, the claimant is independently entitled. Eligibility for divorced spouse benefits begins at age 62, not Full Retirement Age (FRA), though claiming before FRA results in a reduced benefit. The marriage duration requirement is 10 years, which the client satisfied with her 12-year marriage.

Takeaway: A divorced spouse can claim benefits on a former spouse’s record even if the former spouse has not filed, provided they have been divorced for at least two years and meet age and marriage duration requirements.

Correct: In community property jurisdictions, there is a strong legal presumption that any asset acquired by either spouse during the marriage is community property. To classify an asset as separate property, the burden of proof lies with the party asserting the separate status. They must typically provide clear and convincing evidence, such as documentation showing the funds originated from an inheritance, a gift specifically to one spouse, or were owned prior to the marriage and never commingled.

Incorrect: Equitable distribution is the standard used in common law states, not community property states, and focuses on a fair rather than equal division. Separate title is not a valid presumption in community property states, as the character of the property is determined by the source of funds and timing of acquisition rather than the name on the account. Transmutation refers to the change in an asset’s character (e.g., from separate to community), but it is not an automatic presumption based on a timeframe; it requires specific evidence of intent or inextricable commingling.

Takeaway: The community property presumption dictates that all assets acquired during marriage are owned equally by both spouses unless the claimant can prove separate origin through clear and convincing evidence.

Correct: In divorce financial planning, transmutation occurs when separate property (such as an inheritance) is treated in a way that evidence suggests an intent to make it marital property. Depositing separate funds into a joint account used for marital expenses (commingling) is a primary way that separate property loses its protected status and becomes subject to equitable distribution or community property division.

Incorrect: The claim that inheritances are always protected is incorrect because their status can change based on the owner’s actions, such as commingling. Active management is a concept used to determine if the appreciation of a separate asset becomes marital, but it does not address the initial classification of commingled principal. Treating only the interest as marital is a misunderstanding of how commingled principal is generally handled in most jurisdictions, where the entire balance often becomes marital if it cannot be clearly traced.

Takeaway: Separate property can lose its protected status and become marital property through the process of commingling and transmutation when mixed with joint assets and used for marital purposes.

Correct: The Income Capitalization Approach is the most appropriate method for valuing investment properties because it converts the anticipated future benefits of ownership (the net operating income) into a present value estimate. In a divorce context, if a property is held for its income-generating potential rather than as a primary residence, using the Sales Comparison Approach alone may ignore the specific financial performance and capitalization rates that drive the actual market value of the asset.

Incorrect: The use of reproduction costs describes the Cost Approach, which is typically reserved for special-purpose properties or new construction where market data is scarce, rather than income-producing residential units. Tracing marital versus non-marital funds is a legal and accounting process for characterization of property, not a valuation methodology for the real estate itself. While renovations affect income, the temporary nature of lower rents does not inherently dictate the choice of the Income Capitalization Approach over the Sales Comparison Approach; rather, it requires an adjustment within the chosen methodology.

Takeaway: For investment real estate in a divorce settlement, the Income Capitalization Approach is preferred when the property’s value is fundamentally derived from its ability to produce net operating income.