March 28, 2017
We’ve all heard the number: About 50% of marriages end in divorce. If you’re a woman who falls into the divorced (or going through a divorce) category, you’ll need to stay positive, be strong, get organized and figure out your finances. Of course there are other things you’ll be worried about too, like your living situation and custody issues if you have children. But don’t let your finances take a back seat during all of this. Let’s look at some important financial items you’ll need to take care of when getting a divorce.
- If you plan on getting half of your husband’s 401(k) or pension plan, you’ll need a Qualified Domestic Relations Order. A QDRO is a judgment or order for his retirement plan to pay marital property to you (the spouse or former spouse). These orders can also require payment to a child or another dependent of a participant if this is applicable in your divorce. Since the 401(k) or pension money is inside a qualified plan through his employer, you’ll need to get the QDRO put together before the divorce is finalized to make sure you have the necessary legal documents to provide so the plan can honor your request. This document will state exactly how the funds will be divided. Keep in mind that a QDRO is not required when dividing non-employer sponsored plans such as IRAs and other brokerage accounts.
- Organize and consolidate your new accounts. If you end up with part of your husband’s investments such as his IRA, 401(k) or regular brokerage account, you should reassess the investment selections. If you simply took over the funds and stocks that he had, they might not be suitable for you. Work with an advisor to determine a new strategy that fits your own unique risk tolerance and time horizon. Additionally, the funds you were left with might end up in an account as part of his employer’s plan, meaning the advisor was automatically assigned. Look into transferring the assets into your own existing account with your advisor or hire an advisor for the first time if you don’t already have your own.
- Look into Social Security. You may be eligible to collect on your ex’s Social Security benefits if you were married for at least ten years and you are not re-married at the time you apply to start taking Social Security benefits. You must also be at least 62 years old to start collecting, but that doesn’t mean you shouldn’t plan ahead if you are younger. Lastly, your Social Security benefit would have to be less than his to collect on his. In other words, if your own benefit is more than his, you will simply collect on your own. Keep in mind, if you are eligible to collect based on his benefits, it will not negatively impact what he may collect. You should consult with an Advisor who understands these Social Security rules to determine a strategy that will result in the most retirement income.
- Review and update your beneficiary designations. Make sure you remove your ex’s name if you don’t want him ending up with your assets in case of your death. Certain qualified accounts (IRAs and 401(k)s) may require proof of divorce to remove your ex spouse’s name as the primary beneficiary. If you have young children, you may consider establishing a trust to outline how their inheritance will be paid out.
- Make a new budget. Most likely you’ve been sharing living expenses with your husband during marriage. If his income was the majority of the household income, your lifestyle might need to change. If you qualify for child support or alimony it might not be enough to make up the loss of his regular income if you plan to continue paying the mortgage and caring for the kids. Making a list of all your fixed expenses is crucial. Once you know what your new income will be, determine what you have leftover for extra spending and savings. Your retirement plan might have taken a big hit due to the divorce. Make sure to contribute now more than ever to make up for any losses. You’ll also want to make sure you have enough life insurance on his life so if he dies and alimony or child support stop, you can make up that lost income.
There are going to be countless other legal and personal things to take care of. This small checklist should help you get started with getting your financials in order. Working with a Financial Advisor will make your life a lot easier. There will be a number of rules, tax implications, and laws to consider before taking action on any of these steps. If you want financial advice from another woman, contact us.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice. This information is not intended to be a substitute for specific individualized tax advice. Neither SagePoint Financial Services, Inc., nor its registered representatives, offer tax advice. As with all matters of a tax related nature, you should consult with your tax professional.