So, you have been married for some time and are facing a divorce after rearing children, but before retirement. This can be tough in more ways than one.
In addition to the nearest and dearest of relationships impacted, your finances will feel the pain, too.
A recent article in USA Today, titled "Protect finances in later-in-life divorce," takes a look at protecting your finances during a later-in-life divorce.
Use a third party mediator. Although some couples can sort things out on their own, many others use an impartial third party to help with the process. The original article says couples heading into divorce litigation should give their attorneys permission to contact their accountant, estate planning attorney, and financial adviser.
Look at your shared and individual debt. Hidden debt can be a nasty surprise at any time, but especially when people divorce. To make matters worse, if you live in a community property state, then you are responsible for half your spouse's debt—even if the debt is not in your name. In non-community property states, you can still have trouble if you and your spouse hold credit cards or joint loans. Get a full credit report before filing for divorce to help uncover hidden debts prior to negotiations.
Review your assets and retirement benefits. Most assets will be considered marital assets, notes the original article. Once you have a firm handle on what you own and how title is held, do not make any moves without consulting your legal counsel! You do not want to get cute and shift assets to others out of your name.
Some believe their divorce decree is protection for their retirement account. Not so.
You need a separate order, typically called a Qualified Domestic Relations Order (QDRO). This order covers the division of retirement benefits and allows money in a plan to be distributed to another owner without the usual transfer taxes and penalties. You should also look at the beneficiaries on assets like life insurance, investment accounts, and bank accounts to see if you need to make any changes.
Hold onto health care. A settlement should incorporate any specific health issues to ensure adequate health care. Some states allow the insured spouse to extend coverage to the dependent spouse. In some circumstances, it may be wise to permit a spouse to keep receiving health care coverage. If that is not an option, then make sure to shop for potential health insurance plans and factor those costs into the agreement.
How divorce can affect your Social Security. Even if you remarry after your divorce, your former spouse is entitled to benefits based on your Social Security record. No, really. But only if your marriage spanned more than 10 years and if he or she is over 62 and unmarried. The amount of the benefit is calculated on your former spouse's earnings versus the amount he or she would receive from your benefit.
After your divorce, you should concentrate on rebuilding your financial security. Speak with an estate planning attorney to evaluate your new financial situation and to uncover new opportunities to save and invest for a more certain future.
While you are at it, get your estate plan revised!
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: USA Today (November 23, 2014) "Protect finances in later-in-life divorce"