Commentary by Joel Harris
Divorce is undoubtedly one of the most challenging and difficult experiences a person can face in their lifetime.
With divorce comes an array of emotions, new responsibilities and a realization that you need to pick yourself up by the bootstraps and tackle the world alone. With so many questions still up in the air, one aspect of your life that you should make sure you’re in control of is your finances.
Here’s a checklist of things to think about to help you pick up the pieces after a divorce:
One of the most overlooked aspects after a divorce is estate planning. People often forget to update the beneficiaries of their retirement accounts and life insurance policies. If your beneficiary forms are not changed, your ex-spouse may inherit a large portion of your assets in the event of your passing.
Furthermore, you should seriously consider executing a new will or trust to prevent your former spouse from controlling the assets you want to leave to your children, grandchildren or even a charity.
With a divorce comes along a lot of unanswered questions about retirement planning. While you were married, your ex-spouse may have controlled the household budget, investments, life insurance policies and liabilities. Now all these responsibilities have been placed on your shoulders and it can be quite daunting to figure out where to start.
It is important to take your time to itemize all of your assets and liabilities after a divorce is finalized. Secondly, create a working budget around your new household income to make sure you get a handle of what’s coming in versus what’s going out. This may take some time and effort, but it will help you sleep better at night in the long run.
If you’re inheriting an interest from your ex-spouse as part of a divorce, it is really important the transfer is done properly to avoid unnecessary taxes and penalties. Make sure you work with a competent financial professional to ensure the titling and transfer of assets is done in accordance with IRS regulations.
You should re-examine your life insurance, long term care and health insurance policies to make sure they meet your needs moving forward. Long term care insurance is especially important to review for women because they typically live longer than men and usually require more care in their latter years of life. Additionally, if your former spouse carried the health insurance, you may need to look at the private market for new coverage for you and any dependents.
College planning for your children
If your divorce decree requires you to contribute funds to pay for your children’s college education, look into accounts like 529 college savings plans to help you get started. Start with a systematic deposit program to set aside specific funds to help pay for your children’s future education costs.
It is imperative to understand the potential joint credit and liabilities you may have with your spouse before the marriage ends. Attaining your credit report early on in the divorce process will help you identify what joint liabilities you have with your soon to be ex-spouse. Not only is this important to help sort out the divorce proceedings, but most importantly, it helps you have greater control of your credit score to make sure it isn’t compromised during the negotiations.
Once the divorce is finalized, be sure you check your credit report again to make sure you are not financially attached to your former spouse.
Social Security Planning
If your marriage lasted more than 10 years and you never remarried, you may be eligible for up to 50 percent of your ex-spouse’s social security benefit at full retirement age. Furthermore, should he or she pass away, you may be eligible for their entire social security benefit under the survivor’s benefit provision.
It is important to understand the nuances of social security before you elect your benefits, such as the income limits that could potentially reduce your benefits if you elect to take your social security early. Please examine your options closely so you can maximize your income in retirement.