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, remember this: 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.
Don’t let your finances take a back seat during this. Let’s look at some important financial items you’ll need to take care of during divorce planning.
1. Qualified Domestic Relations Order (QDRO)
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. The 401(k) or pension money is inside a qualified plan through his employer. You’ll need a completed QDRO before the divorce is finalized. This will ensure 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 this toward the top of your divorce planning to-do list.
Keep in mind that a QDRO is not required when dividing non-employer-sponsored plans such as IRAs and other brokerage accounts.
2. Organize your new 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. The funds and stocks that you take over may not be suitable for you. Work with an advisor to determine a new strategy that fits your own unique risk tolerance and time horizon.
The funds you were left with might end up in an account as part of his employer’s plan. This means 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.
If you're interested in a new advisor to discuss divorce planning with, please feel free to reach out to us here.
3. Look into Social Security
Look into Social Security. You may be eligible to collect on your ex’s Social Security benefits if you(r):
- were married for at least ten years
- are not re-married at the time you apply to start taking Social Security benefits
- are at least 62 years old when you start collecting
- Social Security benefit is less than his
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.
4. Update beneficiary designations
Review and update your beneficiary designations. If you don't want your ex to get half of your assets in the case of your death, make sure you remove his name from your designations.
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.
5. New Budget
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.
Even if you qualify for child support or alimony, it may not cover the difference of his regular income. This is especially important if you plan to continue paying the mortgage or caring for the kids.
Making a list of all your fixed expenses is crucial. After this step, you will be able to see what you have leftover for spending and saving.
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 your partner's life so if he dies and alimony or child support stops, 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.
Divorce planning can be difficult to navigate. Stay positive, be strong, get organized, and figure out your finances.
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.