Life After Divorce
Posted Sunday, September 30, 2018
Your divorce lawyer just handed you a signed and fully executed divorce settlement agreement or divorce decree, and says “Here ya go. Call me with any questions.” Or maybe it was the paralegal from the divorce law firm you hired. At any rate, you don’t feel relieved or rested. Life after divorce was supposed to be a new chapter, right? Even the typewriter thinks so!
Sure, you probably started to lose weight by eating right and hitting the gym. Perhaps you whitened your teeth, or even considered a second round of braces. Or casually perused match.com from a public library in case your IP address is recorded and cross-referenced with your facebook account. As an aside, No, it is not too soon to at least look around- you’re human.
Nope… you still have anxiety- This is it? Everything is done? The answer is simply No. There is a ton of more stuff you need to do for the upcoming months after your divorce is final. Let’s run through some basics.
Prior to Signing the Divorce Settlement
Yes, this webpage is dedicated to life after divorce, but there are some things to consider right before you sign the divorce settlement agreement. And if you don’t take care of these things, your life after divorce might be a much larger pain than originally anticipated. Most of these divorce considerations should be reviewed with your divorce attorney and your divorce financial analyst.
Freezing Joint Accounts
This issue needs to be reviewed with your divorce attorney. But in general, you want to freeze credit cards, HELOCs (home equity lines of credit), brokerage accounts, etc. early in the divorce process. You also want to lock down your social security number such as LifeLock so your soon-to-be ex-spouse cannot open additional joint accounts without your permission- Yes, the courts will usually not consider this debt to be marital, but take the mystery out of it by deploying the necessary precautions.
Contact your financial advisor or investment company, and alert them of your divorce proceeding. Often times one spouse handles most of the money and retirement planning, and this person might have “discretion” over investment accounts. Discretion allows a non-account holder to make investment choices and decisions. In the era of electronic everything and internets (yes plural), discretion becomes fuzzy. Only teddy bears should be fuzzy during a divorce.
If you have personal login credentials for your bank, credit cards, mortgage lender, brokerage accounts, utility bills, etc. you should change these passwords right away. While using ‘My-Ex-Is-A-Jerk123#’ is fun, it is also fairly hackable. All kidding aside, you might have to coordinate with the service provider in order to have multiple user accounts. For example, it is safer for you and your spouse to have separate login credentials for your checking account- this way movements and transactions can be traced. How often have you used your spouse’s login for something? A lot. We all have. But now you have to be careful because your actions are cloaked in the contemplation of divorce.
Also be wary of password resets. The email associated with the login might be a joint email account, or an email account that your spouse has access to. Hotmail, GMail, Yahoo! etc. Pick one. Get a new email. Keep it quiet.
Many divorce settlement agreements contain alimony or spousal maintenance. These payments are simply designed to help the recipient former spouse transition to a new way of life. Let’s say your former spouse is ordered to pay you $3,000 per month for 60 months. That is approximately $180,000 in total payments, with a present value of about $163,000 using a 4% interest rate (obtained from the Pension Benefit Guaranty Corp).
As certified divorce financial analysts (CDFA) we would let you know that if your ex-spouse dies today, you would lose $163,000 given the example above. So, you might want to take out a life insurance policy to ensure that you would get this future payment should he or she die. There are three basic parties to a life insurance contract- the contract owner, the insured and the beneficiary.
Typically the recipient of alimony or spousal maintenance would be the contract owner and beneficiary, with the payor (the spouse making the payments) as the insured. It is dangerous to have the former spouse change an existing life insurance policy to show the spousal maintenance recipient as the beneficiary. Yes, this makes things easy in the beginning but you, as the recipient, have no control over the policy. If the policy lapses for lack of payment, how would you know?
Why do you want to get this done prior to the final divorce decree? Good question- what if your former spouse is not insurable? What if there is a medical condition that makes life insurance impossible? Wouldn’t you want to re-negotiate a few things prior to signing the divorce settlement agreement? This is rhetorical- of course you would!
WCG (formerly Watson CPA Group) recommends John Stone of Stone Assurance for all your insurance needs including life, home, auto, etc. His email is email@example.com and his phone number is 719-210-0399. He is a member of the Colorado Divorce Consortium and has an office with WCG (formerly Watson CPA Group) offices.
Life After Divorce Settlement
Once you have a signed divorce settlement agreement, it is time to go to work and get things done. Need some motivation? How about this- Divorce isn’t a tragedy. A tragedy is staying in an unhappy marriage. Feeling energized? At any rate, you should review these considerations with your divorce attorney and your financial analyst.
You should have already opened your own bank account and credit cards. If not, do so right away. Afterwards, you should close all joint bank accounts, credit cards, lines of credit, etc.
Sign up for credit alerts or some other credit monitoring service such as Experian. This is critical! Too often we have clients come into our office who had minor hiccups in their credit report that could have been swiftly fixed. Instead, these minor problems manifested into major disasters because of nut-job ex-spouses, not getting the forwarded mail, not updating the contact information for your accounts, or a combination of all this. Sign up. Monitor. Nip things in the bud.
QDROs and Retirement Accounts
Many divorce settlement agreements will have provisions for one spouse to get the other spouse’s IRA, or a portion of a 401k or pension. IRA transfers are usually straight forward, and most brokerage or investment firms only need a divorce decree. IRAs are not moved or assigned with a qualified domestic relations order (QDRO). QDROs are reserved for retirement plans such as a 401k, 403b or some other pension. QDROs might have a time limit relative to the divorce decree or divorce settlement date.
Be aware- don’t mess around with delaying QDROs or account transfers. The people that administer retirement plans really don’t care about your troubles or problems- we’ve seen hundreds of thousands of dollars get tied up over a paperwork snafu.
You will need to review the titles and ownership of your residence, rental properties, automobiles, investment accounts, etc. with your divorce law firm or attorney. This can be a big deal. Ready? Let’s say you and your former spouse cannot sell the matrimonial home for 3 years because the market is not healthy. Or perhaps you simply agreed because of school district issues, or some other externality. Common. Happens a lot.
Let’s also say that you are no longer living in the home, and you basically have no interest in the home until it sells 3-5 years later. If you originally titled the property in both your names as joint tenants with rights of survivorship, and you die prior to the home selling, your property interest might be absorbed by your ex-spouse. In other words, your heirs might not get your portion of the home’s proceeds.
You might want to re-title certain assets as tenants in common. Talk to your divorce lawyer and get titling issues resolved. Remember, when you are tethered to another person financially, you are putting yourself at risk!
Many times the matrimonial home will be retained by one of the spouses. If you quit claim your interest to your former spouse, you can still be liable for the debt on the home. Just because you have a shiny new divorce settlement agreement stating that the house goes to your ex-spouse doesn’t mean the bank agrees. They are not a party to your contract ending your marriage. Speaking contracts, your loan probably had language such as “joint and several liability” meaning each party to the loan contract can sued individually. Bummer.
Refinancing is tough- it was tough when there were two people on the loan, now you or your spouse need to qualify on his or her own. Yuck. If you are the one who needs to refinance to take the ex-spouse off the loan, talk to us at WCG (formerly Watson CPA Group). We have several referrals to give you.
Huge! There is a ton of stuff you need to take care of when it comes to your estate. Now that you are single, who are your personal representatives in case of a medical emergency? You hit your head and you are unable to communicate to doctors- your parents, your sister, your best friend are all helpless without updated power of attorney documents.
Wills and Trusts need to be updated. Similarly to title issues above, your beneficiary designations must be reviewed and updated. Jason Watson, Managing Partner of WCG (formerly Watson CPA Group), is also a certified divorce financial analyst, and can review your beneficiaries to ensure everything is as you want. We help people all over the country!
You should alert your insurance agent right away. For example, you might have an auto policy that is being rated for your ex-spouse who had some accidents or traffic tickets. Perhaps your driving record is better, and your rates will decrease.
How about jewelry? Most couples accumulate jewelry and add a rider onto the homeowner’s insurance policy to cover theft or fire. If you move out, become a renter, and take all your jewelry out of the matrimonial home, you might have some insurance coverage problems.
Taxes change dramatically when divorced. Withholdings, deductions, child exemptions and credits, alimony or spousal maintenance payments, etc. can be a disastrous combination come tax time. WCG can help. As stated before, we don’t mind telling you bad news- it is what it is. But we don’t want you to be surprised- talk to us!
When the dust settles you need to re-establish your financial plan. There are three major wealth considerations-
- Accumulation (fun and exciting part)
- Preservation (the tricky part)
- Transfer (the necessary evil part)
Each of these major wealth considerations are interwoven, and need comprehensive focus to ensure the necessary dots are connected and no gaps or pitfalls exist during transitions. That is where financial planning comes into play. The reason for financial planning are-
Define your goals and objectives, determine your current position and discover unmanaged risks. This sounds simple and makes sense, but defining goals and objectives is a fluid concept. They change. And as they change, the plan needs to be malleable enough to adopt. Financial plans are modified annually or whenever a major life change as occurred, whichever is more frequent. This is important.
Financial plans also create a blueprint and chart a course on how to get reach goals and objectives while managing risk. Again, this sounds simple. But even the most basic house needs a blueprint for framers, plumbers, electricians and even inspectors to review and implement. And in the case of a financial plan, these same players are your financial advisors, tax professionals, attorneys and insurance specialists. A financial plan brings these people together to work in concert.
Financial plans also provide confidence, measure success and hold everyone accountable. If everyone agrees that your financial plan will ensure financial security in your life, then it becomes a measuring stick for determining success along the way. Anyone can throw some money at an investment, but what does it mean? And does it fit the plan? And is the selection of that investment meet the plan’s objectives.
Life After Divorce Part II
Please reach out to us. You do not have to tackle this alone. No, we cannot help you with your match.com profile nor help with whitening your teeth (strips stink, spend the money and get the trays), but we can help with all financial and logistical aspects of life after divorce regardless of where you live. Please contact us for a consultation to determine what you need and how we can help!