How to Financially Thrive After Divorce 

Your future financial picture relies on the assets you’ve been awarded in your divorce. Here’s what you need to do now to make sure those assets are available to you when that time comes.  

5 Minute Read

Getting divorced -- a fate in store for nearly 50 percent of marriages in the U.S. -- can have a significant impact on your finances. And as with any legal proceeding, there are a lot of financial nuances that can surface in the process. For instance, you might find it surprising to learn that everything is considered divisible, like assets in your name only – and even the frequent flyer miles you so carefully accrued over the course of your married life.  

But once your divorce is final, it’s time to move beyond the complications and stress of the process itself and begin to get your financial house in order. Rolling up your sleeves and cleaning up after the havoc that divorce can cause is the only way you can enter your new life knowing all loose ends are tied.

To protect all of the assets you’ve been awarded in your divorce settlement, and avoid any missteps that could result in having to take court action again later, the following gives you an easy explanation of the essential first steps you should take.

Retirement assets

Obtain a QDRO. Your divorce settlement might state that you receive part of your ex-spouse's retirement benefits, or your ex-spouse might receive part of yours. However, an employer may distribute retirement plan benefits to a former spouse only after receiving a court-issued document that meets the requirements for a qualified domestic relations order (QDRO). If you are to receive benefits from your ex-spouse's plan, you need to follow through and obtain the QDRO and then ensure that the plan's administrator receives it.

Change your beneficiary. A divorce or other agreement generally has no effect on your retirement plan beneficiary designations. Therefore, you must formally amend the appropriate plan documents to name someone other than your ex-spouse. You also want to be sure to change the beneficiary on any IRAs you might have.

Re-think retirement plans. You might be able to improve your retirement outlook by changing your asset allocation and taking advantage of additional current contributions to your 401(k) or other retirement savings account.

Check in with Social Security. Once you are 62, your ex-spouse's work record may entitle you to receive benefits earlier than you expected. It’s time well-spent to call the Social Security Administration to find out if you are eligible. 

Investment assets

Your new marital status might mean a shift in your investment goals and even your tolerance for risk. To address these potential changes, it’s a good idea to meet with your financial advisor to update your investment strategy and decide how much and how often to invest for the future.

Financial documents

After a divorce or separation, a general review of all your financial documents is advisable. In light of your new situation, be sure to examine the following:

  • Estate plan. If your spouse is your heir or successor trustee, you need to revise your will and trust to name another trustee and beneficiary. Also, marital status is often a key factor in planning an estate. You should review your present plan with your professional advisor to update it for your new situation.
  • Life insurance. The change in your marital status will most likely require a reevaluation of your life insurance policies and, at the very least, a change in your beneficiary designations.
  • Credit records. It is important to separate your credit history from your spouse's so that future reports will be based only on your own credit use. This will involve notifying credit bureaus of your divorce and removing your spouse's name from any joint credit accounts.

Get professional assistance

A divorce might raise numerous tax issues as well, and a settlement agreement that reduces taxes may benefit both sides. This makes professional legal and tax advice essential as your agreement is being negotiated.

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This information is not intended as legal or tax advice and should not be treated as such. You should contact your estate planning and/or tax professional to discuss your personal situation.

Wealth planning strategies have legal, tax, accounting and other implications. Prior to implementing any wealth planning strategy, clients should consult their legal, tax, accounting and other advisers.

 

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