By Katie Marsden, CFP
The judge has signed off and you are officially divorced. Whether the process was quick or drawn out, contentious or amenable, exhausting or empowering, it was almost certainly emotional and you can now release that pent-up sigh of relief. But hold on a minute, because you haven’t reached the finish line quite yet. While the experience varies from couple to couple and individual to individual, there are probably still important action items on your list. Of course, every situation is unique, but the following are some common financial items to think about after your divorce is finalized.
Dividing/Transferring Assets – This seems like a no-brainer, but many times 401(k)s or other accounts are left lingering without being disposed of, especially if a Qualified Domestic Relations Order (QDRO) is required. QDROs are necessary to split retirement accounts and pensions, and because they must go through the plan administrator, this process can be arduous and take time. Be patient, but make sure that all assets are transferred as intended. You can use your divorce decree as a guide or checklist to confirm that everything is accounted for.
New Accounts – Do you need to open any new accounts to receive assets that will be split or to retitle any of your current accounts? Do you have linked accounts or standing transfer instructions on file with certain accounts that you would no longer like applied? Do you have a direct deposit that needs updating? Taking a fresh look at your various accounts can also serve as an opportunity to open a savings account if you don’t already have one and start building an emergency fund. Remember, a good rule of thumb is to save 3-6 months of living expenses. If you are on a fixed income or are no longer employed, you may opt for a larger emergency fund buffer.
Review Your Cashflow and Budget – You have likely done some work around cashflow and expenses throughout the divorce process, which is a good thing because this area can be a difficult shift for several reasons. First, after the divorce is finalized, the likelihood is high that changes will occur with income coming in and expenses going out. At a bare minimum, the same income is now supporting two households. Second, you may now have to adjust to a different level of available assets, which increases the need to track expenses and possibly be more diligent about following a budget going forward. Finally, a move may be involved – selling a house, purchasing and relocating to a new house, downsizing, or renting an apartment. The key here is recognizing that it takes time to get comfortable with the financial changes, regardless of how big or how small, and to work through your new budget and spending goals. Learn what you can comfortably spend, track where your money is going, and adjust as needed. And don’t beat yourself up as you work out the kinks.
Rename Beneficiaries – Do not forget to update the beneficiaries named on your retirement accounts, pension or employee benefits, and life insurance policies (unless the divorce agreement stipulates otherwise). You likely no longer want your former spouse to be the primary beneficiary.
Revisit Insurance Coverage – Will you need different health insurance down the road? If you are covered by COBRA, when does it expire and when do you need to revisit your health insurance options? Typically, after a divorce you have 36 months to remain on COBRA, however this coverage can be expensive and a more cost-effective option may be available depending on your health and desired level of coverage. It is also a good time to review the insurance coverage on your home and car to ensure it is still appropriate given your change in circumstances. Depending on your age, this may also be a good time to explore long-term care insurance.
Take a Fresh Look at Your Tax Situation – Spend some time understanding what filing status will be most beneficial for you going forward and what impact that may have on what you owe. If you are employed, connect with your HR or benefits team about how you may want to update your paycheck withholding to match your tax planning.
Update Your Estate Plan – It’s likely that where you want your money to go after you are gone has changed along with your marital status. Meet with an estate planning attorney to revisit your will or trust document. If you have minor children, do you need or want to name a new guardian? Are there now different people you would like to step up and assist if you were incapacitated and unable to make financial or medical decisions? Your healthcare power of attorney may have been your spouse, but after divorcing you may not want that person making medical decisions for you. Go back to the drawing board to make sure your wishes are carried out and your documents are up to date.
Redesign Your Future – What do you want your future financial picture to look like? How have your goals and aspirations changed? Does this affect how you should save and spend, or when you might retire? Getting to a place where you are ready to embrace forward thinking can take time. You don’t need to rush into planning, but you will likely need to reexplore what you want out of life, your career, and your financial future. A new, solo perspective can be daunting, exhilarating, and possibly overwhelming, so start where you are. Revisit how your money is working for you. Has your appetite for risk changed, and thus your allocation to stocks and bonds should change as a result?
Review with Your Team – Take a second look at your entire situation with your attorney, financial advisor, and tax professional to check that you have crossed off all the to-do items on your list. Another pair of eyes or two can help you stay on track to get all the necessary steps completed.
As you embark on life post-divorce, a little perspective and organization can go a long way. Remember to give yourself plenty of grace as you reformulate your financial life. It takes time and energy and thoughtful planning. You don’t have to figure it all out at once, but do know what items to keep on your radar.
About the author: Katie Marsden, CFP®, CDFA®
is a Wealth Advisor at Buckingham Strategic Wealth, where she helps retirement savers design, build and protect a financial life plan that balances their present needs with their long-term goals in pursuit of a future they can feel confident about.
Important Disclosure: The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth®. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. Individuals should speak with qualified professionals based upon their individual circumstances. The analysis contained in this article may be based upon third-party information and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. IRN-21-2218
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