By Cindy Turkington
The divorce papers have been signed and you are now single, over the age of 50, and completely in charge of your finances. Depending on whether you were involved in your family’s finances while you were married, you are probably either feeling confident about your financial situation, completely terrified or somewhere in between.
Regardless of where you fall on the readiness spectrum for you to manage your life post-divorce, you want to make sure that you get off to a good start financially.
As a financial planner who works with a lot of divorce clients over the age of 50, I find they want to know where they stand financially so they can feel good as they start to move forward with their new life. Often, it becomes apparent that people aren’t sure about what they need to do once their divorce is finalized
If you are over the age of 50 and starting the journey after the divorce process, it’s essential to educate yourself and get organized. Quite a few things need your attention now. The list starts here.
Health insurance: If you are planning to stay on your ex-spouse’s company health insurance plan through COBRA, you need to complete the paperwork within 60 days or you may not be able to stay on their plan. Group health insurance plans typically have better benefits than individual plans that you can purchase on the open market. When you divorce, you can elect COBRA coverage for up to 36 months.
Post-divorce budget: You likely put together a budget during the divorce process, so it’s a good idea to revisit your budget to review the expenses you initially listed and compare them to what your actual expenses are going to be going forward. This is probably one of the most important tasks you should do post-divorce to ensure that your budget matches your income. If you don’t know what your actual expenses are each month and you overspend, your chances of running out of money are going to increase.
Update your estate plan: You will need to get an updated will, health-care directive and Power of Attorney. These are very important documents for you to either establish if you don’t currently have them, or to update them. Having a will allows you to decide how your assets are distributed after you die vs. having the court system decide. Other benefits of having a will include helping to minimize estate taxes, and it gives you the ability to create a testamentary trust, which is necessary if you have minor children. You can choose to disinherit family members who would otherwise stand to inherit your estate if you died without a will. You can also choose to give money to your favorite charity or religious organization.
A healthcare directive is a written document that outlines your healthcare wishes if you become unable to make your own decisions. You are also able to name another person to make those decisions for you and for them to follow your wishes outlined in the directive.
A Power of Attorney gives another party the ability to make decisions on your behalf if you become incapacitated or unable to make your own decisions.
Beneficiary changes: It’s also important to update the beneficiaries to your company retirement plan, pension plan, IRA accounts, and life insurance policies. Most individuals probably wouldn’t want their ex-spouse to inherit their money or proceeds to their life insurance policy (unless your decree states that the spouse is to remain the beneficiary).
- If you have any joint checking, savings, or investment accounts, close joint accounts and open an individual account. Complete account transfers as directed in your decree.
- If you are to receive money from your spouse’s qualified retirement plan, your attorney will draft a Qualified Domestic Relations Order (QDRO) to complete the transfer. The definition of a QDRO provided by the IRS is as follows: A QDRO is a judgment, decree or order for a retirement plan to pay child support, alimony or marital property rights to a spouse, former spouse, child or other dependent of a participant. An individual receiving money under a QDRO can roll over all or part of the distribution they receive tax-free to an IRA account in their name.
- If one party is keeping the family home, review the specifics stated in your decree. You may need to close home equity lines of credit or remove your spouse from the mortgage and/or title.
- Other personal property includes vehicles, motorcycles, boats, trailers, etc. Review the titles for each item and have your spouse removed if you were solely awarded the property. Otherwise, if you don’t complete this task, when you or your spouse want to sell personal property that still has both spouses listed on the title, each of you will need to be involved in the transaction. This can not only be inconvenient, but could also bring up painful memories for some, even if many years have passed since your divorce.
- If there are any 529 Plan accounts and you are not listed as the account owner, be sure to monitor the accounts. Ask for copies of the statements to see what additions or withdrawals are being made. Hopefully your divorce decree directed how any unused funds in these accounts would be divided after your children are finished attending college.
- Stay on top of proceeds to be received from businesses, notes, stock options and restricted stock units (RSUs) that may be received months or even years after your divorce. Mark your calendar and ask for regular updates on these items.
Potential Tax Ramifications due to Divorce
Additionally, if you are receiving a taxable, non-retirement investment account as part of your divorce settlement, be sure to review each investment in the account to estimate the unrealized capital gains or losses in the account. This will help you make smart decisions when you need cash or want to rebalance the account to an investment allocation that matches your risk tolerance, age, and goals.
When You Need Help Handling Investments
If you are lacking the expertise to manage investments or have little interest in this area, you should look to hire a professional for help. A Certified Financial Planner Professional (CFP) can help you manage your investments to ensure that you are invested properly for your age, risk tolerance, financial situation and goals. A CFP can also work with you to develop a financial plan to confirm that your spending, investment allocation, and goals are working together so you can live the best life possible with the money you have.
One of the primary benefits in having a financial plan is that it creates a roadmap to see where you are now and then makes a path to get you to where you would like to be in the future. A financial plan also helps you review and coordinate all aspects of your finances. To find a Certified Financial Planner Professional in your area, go to www.letsmakeaplan.org and enter your city, state or zip code on the landing page.
Know About Social Security Benefits
Your Social Security benefit is calculated based on your average indexed monthly earnings during the 35 years in which you earned the most. However, if you are divorced and were married for 10 years or longer, you are also eligible to receive benefits based on your ex-spouse’s record. If you receive benefits based on your ex-spouse’s benefits, your benefit is equal to half of your ex-spouse’s benefit at your full retirement age.
If you are eligible to receive benefits based on your own record as well, your benefit amount will be the higher of the two benefits. The benefit you receive has no effect on your ex-spouse’s benefit.
For more information regarding Social Security benefits, check out the Social Security Administration’s website.
A divorce will likely be the largest financial transaction that a person will experience during their lifetime. If you or someone you know is nearing retirement and planning to divorce, it’s essential to make informed decisions during and after a divorce because the choices you make will impact both your short-term and long-term financial future. Along with hiring a good family law attorney, a Certified Divorce Financial Analyst (CDFA) can help you fully evaluate the long-term effects of the decisions you make during and after the divorce process and provide valuable information on the financial issues related to divorce. To find a Certified Divorce Financial Analyst in your area, visit www.institutedfa.com and click on the Find a CDFA button.
About the author: Cindy Turkington is a CFP Professional, a Certified Divorce Financial Analyst and the owner of Fair Trust Financial LLC in North Oaks, Minn. Turkington is also a member of FPA of Minnesota. Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Fair Trust Financial LLC are not affiliated. Cambridge does not provide legal or tax advice.