Editor’s note: This is part 10 of an ongoing series throughout this year focused on helping older adults navigate the financial difficulties of gray divorce. See below for links to the other articles in the series.
Your divorce is over, and if you're anything like me after my divorce, you're feeling a sense of relief. That's fine. Take a deep breath and relax.
And then get to work.
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It's vitally important that you execute the terms required in the divorce decree as soon as possible. For gray divorcées, people over the age of 50 getting divorced, the stakes are even higher. You simply have less time to recover from the financial hit of divorce. Delays can have costly consequences.
Let me give you a scary example. A couple years ago, I spoke to a woman who had not taken her share of her husband's 401(k) per the terms of the QDRO (qualified domestic relations order) drawn up in the decree. Six years had passed since the divorce was finalized. Guess what happened? Her husband had invested poorly and withdrawn funds from the account. She ended up with a significantly smaller retirement account than she would have had if she'd consulted with a financial adviser after the divorce, transferred the funds and invested in a sensible portfolio.
In an earlier article in this series, I discussed two key financial planning yardsticks that you should monitor on an ongoing basis after divorce. Here, I'm going to focus on your immediate tasks once the ink is dry on your divorce decree.
Get organized
- The first step is to review what you need to do with your attorney and your financial adviser.
- Have copies of the divorce decree and marital settlement agreement to share with financial institutions for upcoming property transfers.
- Close joint credit cards and bank accounts. And be sure to cancel your ex’s authorized-user status on all of your accounts. Open new credit card accounts in your name, if you haven't already.
- Retitle real estate and automobile assets.
- Check your credit about two months after the divorce is final to verify no joint accounts remain.
- Change passwords on all accounts, if not done already.
- If your decree addresses changing your legal name, you'll need to contact the financial institutions you work with, the Social Security Administration, the DMV, etc.
Meet with your divorce financial adviser
- If you are due to receive part or all your ex’s 401(k), follow up with your attorney or drafter of the QDRO to ensure that the plan administrator has accepted the order, and it has been filed with the court. Then speak to your financial adviser about possibly setting up your own IRA as a destination for these assets.
- If you need to withdraw any money from the 401(k) to meet immediate expenses, you should speak to the plan administrator (preferably before the divorce decree was finalized) to review the plan’s withdrawal rules. Just remember, if you're younger than 59½, the IRS allows you to take 401(k) funds pursuant to a QDRO without paying the 10% early withdrawal penalty. Once you roll the funds into an IRA, the penalty applies if you take an early withdrawal. Of course, ordinary income taxes need to be paid on withdrawals whether they be from a 401(k) or an IRA.
- For bank accounts, investment accounts and IRAs, you'll need to call the institution holding the assets. They all seem to have slightly different procedures for transferring assets from joint accounts to new individual accounts or from one spouse’s IRA to another's.
- Once assets are transferred, be sure to review your overall investment portfolio to make sure it's in line with your individual needs and objectives. If your ex handled the investments, you may find that his/her level of risk is not suitable for your situation.
Insurance
- Obtain life insurance if required by the divorce decree. If you are receiving spousal support, you'll want to protect those payments by being the beneficiary of insurance on your ex-spouse. Or perhaps the decree transfers ownership of an existing policy to you. Whatever the case, get on it.
- Make sure you change life insurance beneficiaries, unless otherwise stipulated in the divorce decree.
- Revise health insurance as directed in the divorce decree. If insurance is not available through an employer, begin COBRA coverage or get a new individual policy. You should already have determined your future health insurance coverage before the divorce settlement.
- Consider long-term care or disability income coverage if you don't have it already.
- Review and/or obtain new auto and homeowners insurance policies.
Taxes
Meet with your tax professional to determine your new tax status and any new tax strategies you might want to start using. If you are using a new tax preparer, be sure to have a copy of the previous year's joint tax return. And be sure to share a copy of the decree with your tax person, as it likely contains language that will affect your next filing.
Estate planning
Create a new will. Better yet, establish a trust and review your powers of attorney.
Social Security
- Contact the Social Security Administration to review your eligibility. If you were married for 10 years or more, inquire about your divorced spouse Social Security benefit. You may find it advantageous to claim based on your ex's Social Security earnings record.
- Review your benefits if you're currently receiving Social Security.
Please don't ignore these fundamental steps after your divorce is finalized.
There is life after divorce, even late-life divorce. You're entering a new chapter in your life, and you need to put your best foot forward to build a solid foundation to grow personally and financially after divorce.
If you are emerging from divorce and you’d like to learn more, please reach out to schedule a free consultation.
Other Articles in This Series
- Introduction: Happy New Year: Let’s Get a Divorce
- Part one: How Does a Gray Divorce Affect Social Security Benefits?
- Part two: In Gray Divorce, Two Financial Planning Yardsticks Are Key
- Part three: Don’t Forget to Update Beneficiaries After a Gray Divorce
- Part four: What Is a Lifestyle Analysis in Divorce?
- Part five: How Much Will Getting Divorced Cost You?
- Part six: Think of Prenups and Postnups as Financial Planning Tools
- Part seven: Would a Reverse Mortgage Work for You in a Gray Divorce?
- Part eight: How Retirement Plans Are Divided in Divorce
- Part nine: What You Need to Know About Taxes in a Gray Divorce
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