Long after the wedding bells have faded, you may know someone, hopefully not you, who has come to a fork in the road and has decided to go in a different direction than his or her partner. Boomers and seniors going through the process of divorce need to pay attention to financial matters. While love is not always about money, divorce certainly can be.
Individuals considering a divorce should assemble information and advice pertaining to the legal, tax and financial impact of various proposed divorce settlements. The following are Eight Important “Don’ts” to Keep in Mind When Going Through a Divorce:
Don’t become a financial victim. If you suspect a spouse is planning a divorce, make copies of important records and notify creditors, banks and investment companies in writing. Also, an inaccurate low budget for temporary maintenance can lead to problems when trying to making ends meet with a low court-approved maintenance budget that leaves you with not enough money to live on.
Don’t try to use the courts to punish a spouse. Hiring a combative attorney or ignoring other options like mediation will be costly and toxic to post-divorce family relationships especially with children.
Don’t forget the common enemy: the IRS. As the proverb says: the enemy of my enemy is my friend. Both parties will be impacted by taxes. With careful planning ahead of time, taxes can be minimized.
Don’t use a divorce lawyer as a financial planner, accountant or therapist. At their hourly rates, it’s easy to rack up big bills and not get the specialized advice that other professionals can offer.
Don’t keep the marital home if it’s not affordable. While there may be sentimental value or legitimate concerns about uprooting kids from schools, it may not make financial sense to keep the house. If the house is to be sold, it usually makes more sense to sell the property while still technically a couple to get the maximum exemption of capital gains ($500,000 above cost basis) and split the proceeds to buy or rent another place.
Don’t forget to change beneficiaries. Forgetting to delete and change one’s spouse from qualified plans or insurance policies, unless required by the settlement agreement, not to change beneficiaries could result in benefits or assets passing to someone you do not want to receive them.
Don’t forget to close or cancel joint credit cards. To avoid problems it is best to close credit cards to any new charges pending the final divorce. This will avoid the temptation of one spouse running up charges.
Don’t agree to a settlement without having a QDRO in place. Whenever a spouse has a qualified plan (ex. 401(k) or pension) a Qualified Domestic Relations Order will inform the plan administrator who is entitled to the asset and when. Having a QDRO is critical to protect your interest in the retirement account.
Conclusion – A divorce is not fun. Escaping the emotional toll that a divorce can have may not be possible. However, it is not in a person’s best long-term interests to make or avoid decisions that will impact the future well-being because of emotion. Not paying attention to financial matters can make the divorce more painful than necessary. Not just during the divorce, but or the rest of your life. Assets lost during a divorce can have a major negative impact on retirement assets for your retirement years.
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Author’s email: wolff2000@earthlink.net
