CDA Financial Planning & Property Division 2 — Questions and Answers
Question 1: When a divorcing couple owns a closely held business, which valuation method focuses on the business's ability to generate future income?
- Asset-based approach
- Market approach
- Income capitalization approach (Correct answer)
- Liquidation value approach
Correct answer: Income capitalization approach
The income capitalization approach values a business based on its projected future earnings, making it especially relevant for ongoing enterprises in divorce proceedings.
Question 2: Which type of pension plan guarantees a specific monthly benefit at retirement, often based on years of service and salary history?
- Defined contribution plan
- Defined benefit plan (Correct answer)
- Profit-sharing plan
- 403(b) plan
Correct answer: Defined benefit plan
A defined benefit plan promises a set monthly payment at retirement, calculated using formulas based on salary and tenure, and requires actuarial valuation in divorce.
Question 3: A QDRO (Qualified Domestic Relations Order) that awards an alternate payee a percentage of the participant's retirement benefit is called which type?
- Shared payment order
- Separate interest approach (Correct answer)
- Offset approach
- Deferred distribution
Correct answer: Separate interest approach
The separate interest approach creates an independent benefit for the alternate payee based on a percentage of the participant's accrued benefit at divorce.
Question 4: In divorce, what term describes the increase in value of a separate property asset that results from market forces rather than marital effort?
- Active appreciation
- Passive appreciation (Correct answer)
- Commingled growth
- Transmuted appreciation
Correct answer: Passive appreciation
Passive appreciation is growth in separate property value due to market conditions or inflation, which many states treat as separate property not subject to division.
Question 5: Which financial document is most useful for a CDA to establish a divorcing client's ongoing living expenses for purposes of spousal support analysis?
- Credit report
- Monthly budget worksheet (Correct answer)
- Balance sheet
- Tax return Schedule C
Correct answer: Monthly budget worksheet
A monthly budget worksheet details current and projected living expenses, forming the basis for determining the amount of spousal support needed.
Question 6: Under ERISA, a plan administrator must act on a proposed QDRO within how many days of receiving it?
- 30 days
- 60 days (Correct answer)
- 18 months
- Plan administrator has unlimited discretion
Correct answer: 60 days
ERISA requires plan administrators to notify participants and alternate payees of a received QDRO and determine its qualified status within 18 months; however, the standard review period is 18 months.
Question 7: What is the primary disadvantage of keeping the marital home as part of a divorce settlement compared to selling it and splitting proceeds?
- The house cannot be refinanced after divorce
- One spouse may become house-rich but cash-poor (Correct answer)
- Capital gains exclusion is permanently lost
- Mortgage interest deductions are eliminated
Correct answer: One spouse may become house-rich but cash-poor
Retaining the home may leave the receiving spouse with insufficient liquid assets to meet daily needs, creating a cash-flow imbalance despite apparent asset wealth.
CDA Financial Planning & Property Division 2
When a divorcing couple owns a closely held business, which valuation method focuses on the business's ability to generate future income?