Despite a drop in in the United States divorce rate since its peak in 1980, data from the National Survey of Family Growth indicates that about 30 percent of marriages don't last past a decade and the probability of being married 20 years or more drops to 52 percent for women and 56 percent for men.
Divorce is one of the biggest transitions you will experience in your lifetime and if the financial settlement is not structured properly, trying to amend the settlement can be expensive to correct or possibly irreversible. Chris Bales, a certified divorce financial analyst in Chattanooga, urges anyone approaching a divorce to make sure to get professional advice not only from a legal viewpoint but also from a financial perspective.
Divorce is likely the largest financial transition in one's life, as all the assets amassed and debt accumulated as a couple must now be divided. The decisions to divide assets are often made at a time when emotions are high, and the process can be overwhelming and confusing.
Divorce may sound easy — just divide everything down the middle. But equal is not equitable, and the final dollar amount can end up being significantly less than intended.
If you are approaching or are in the process of a divorce, you should consider the following:
House division: Can you afford the house? Does it need major repairs? Who will pay the fees if you sell? Whose name is on the mortgage loan? Can the loan be reassigned?
Cash accounts: What is the source of these funds? Is the money in the account from income, inheritance or sale of an asset? Do you have individual or joint accounts?
Retirement accounts: What is the account value? Should you request a percentage of the account value or a dollar amount? What is the true value of the pension? Was the account held prior to marriage? What are the financial implications of withdrawing cash from the retirement account?
Major assets: What are the real vs. sentimental values? Are there liens on the assets? If so, who is responsible for the debt payment? Are you listed on the debt?
Liabilities: What type of debt do you have, individually and as a couple? Who accumulated the debt, and whose debt will it be after the divorce? Are you protected from this debt?
Future earnings: Has there been a future bonus or deferred compensation promised to your spouse?
Retitling of assets: Whose name will be on the received assets? Have your wills, trusts and powers of attorney been updated? When should you rewrite these documents?
Insurance needs: Do you have insurance on yourself? How do you ensure premiums are paid and that you are not removed as the beneficiary? What if the payer becomes disabled or dies? Are you protected? Do you have health insurance, or can you stay on your former spouse's plan?
Tax filing status: How do you file this year's tax return?
Social Security: How will you be impacted? Can you receive former spousal benefits? If you are entitled, when can you apply to receive them?
At the end of the divorce process, many couples experience having lost more than they gained, both emotionally and monetarily, and they're just relieved the process is over. The unfortunate reality, however, is that there is still more to do.
Even after your divorce is final, there are areas in finance, property ownership and personal protection that require your attention. These details ensure the agreed upon settlement is fully completed and as effective as intended.
Your financial future may not be adequately safeguarded, and you could be confronted with unintended consequences in the years to come if you don't carefully review the financial details and follow through with the necessary steps to confirm their implementation.
Here are a few areas for your review and attention in post-divorce life:
Retitling of assets: Retitle or transfer the title of all assets titled jointly, such as the home, car and boat. If necessary, or as directed in the divorce decree, begin the process of refinancing each asset solely in the new titleholder's name.
Joint Accounts: Remove your former spouse from and/or close joint accounts including checking, savings and credit cards. If you still hold joint credit cards, you will be responsible for any balances and debts incurred that are not paid off or paid on time. That debt will be listed on your credit report.
Transfers: Confirm that the cash and investment accounts and their proper values have been or are in the process of transferring into your new account. If the account is a retirement plan (401K, 403B, IRA, pension), ensure that the Qualified Domestic Relations Order (QDRO) has been submitted to the plan administrator and processed to completion. Verify the correct monetary amount or percentage of the account has been received.
Notify Your Employer: Change your status at your employer, and update your tax filing status and all the benefit listings and the listed beneficiaries.
Beneficiaries: Review your will, estate plans, retirement plans and insurance policies, and change the designated beneficiaries where necessary. If you don't update this information, these assets could be received by an unintended person such as your ex-spouse.
Revoke any Power of Attorney: If you have any type of power of attorney, have it revoked in writing and recreated, so you don't find yourself in a situation where your former spouse is responsible for your medical care or legal needs. If the power of attorney is recorded, a proper revocation should be recorded, as well.
Insurance: Obtain new insurance for your possessions that have been retitled solely in your name. Also, if using the COBRA health insurance provision at your ex-spouse's employer or obtaining new health insurance, do not allow your health insurance to lapse. Within 60 days of your divorce being finalized, take COBRA coverage or get new health insurance through your employer or the open market.
Review Budget and Retirement Goals: It is inherently more expensive to live single than as a couple. Plan for the added expenses by creating a monthly budget. Also review your retirement targets and goals, and adjust your investment strategy if needed.
Post-divorce life is a new beginning, and properly addressing your new financial situation can provide for a smoother, less challenging transition.
Chris Bales is a Certified Divorce Financial Analyst, a Certified Financial Planner and a Rule 31 trained family mediator. He is the principal of Bridgeworks Divorce Planning, LLC in Chattanooga, www.Bridgeworksdfp.com