United States: "Untying The Knot": Practical Considerations For The Newly Divorced

Last Updated: July 11 2019
Article by Charles B. Law

I was asked recently by a financial advisor in New York, to review and comment on a chart he had put together which was designed to help newly-divorced people in get back on their feet. The draft document I received covered mostly investment matters, but it got me thinking about all of the practical things people need to think about – and do – when they transition from being a married couple, to being single. So, in no particular order of importance (in my view, they are all important, or will be at some point) here are some basic things which need to be attended to after a divorce.

Retirement Money Transfers: Often, a settlement agreement or court decision will call for retirement money to be transferred between parties. These transfers must be made between retirement accounts in order to avoid taxes and penalties. Where the account in question is a simple IRA, or a Roth IRA, a call, and a copy of the order or agreement to the fund administrator is usually enough to have the transfer made. For more complex plans, "qualified plans" as they are known, a Qualified Domestic Relations Order (more commonly known as a QDRO) is needed. A QDRO is an order, prepared either by an attorney or a pension expert, and presented to the matrimonial judge for signature. Once signed, the order is forwarded to the plan administrator, and the money is transferred tax free into a retirement account designated by the recipient.

Consider Your Investments: Most couples, while married, keep their money in the same place – managed by the same person or team. After a divorce, one party (or both) may want to move his or her money to a different manager. Your former manager may have a long-term relationship with your former spouse, or may not suit your needs for some other reason. Most family lawyers have lists of money managers to whom you can reach out, interview, and choose the one you are most comfortable with. Once you find a suitable financial advisor, you should carefully review your financial plan. After a divorce, the circumstances of one, or both parties, are often very different. You may need more, income – or less; you may have different investment goals; and you may have a very different level of risk-tolerance than your former spouse, or than you did while you were married. So it is wise to review your entire financial plan and make appropriate changes to the asset allocation, or any other aspects of your financial picture which you and your advisor feel are necessary.

Taxes: Like the investment professional, your accountant may also be more aligned with your former spouse than with you. In this case, or if you just want a change, you should consider hiring a new accountant. A good, trustworthy accountant is crucial going forward, as he or she will be advising you on all sorts of important tax matters. The advice that you need as a single person will likely be far different from that which you and your spouse were given as a married couple. For instance, you may need to change your withholding amounts, or start making quarterly payments. A good accountant can help you sort through all of these complicated questions.

Insurance: Uncoupling also gives rise to many potential insurance changes. Life; homeowners; disability; and long-term care needs will most likely be different for a single person than for a couple. A good insurance agent will review your insurance needs, answer your questions, and help you find suitable coverage for your new life.

Estate Planning: One of the most fundamental issues to arise after a divorce is the need to change your estate plan. Of course, you will need a new will in order to pass your estate on to your chosen beneficiaries, but also any living wills; healthcare proxies; and trusts should be reviewed and revised as necessary. A good trust and estate lawyer will be able to assist you with this.

These are just a few of the practical things you should be thinking about after the divorce becomes final. Tending to these important life matters now will help prevent any unpleasant surprises later on.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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