How To Handle Your Finances During A Divorce

Financial Dos and Don’ts During a Divorce

Massachuessets Attorney Gabriel Cheong wrote a good post about what you should and shouldn’t do with your finances during a divorce. You can read his article here.

  • Life Insurance  DO change beneficiaries of your life insurance policy immediately after a divorce (if not DURING the divorce). You simply do not want your ex-spouse to inherit life insurance proceeds after your death when you actually want the money to go to your current spouse, parents, or kids. If you have children with the ex-spouse, then speak with an estate planning attorney to set up a trust for the life insurance so you can be sure that the proceeds go to your children instead of benefiting the ex-spouse.
  • Joint Bank Accounts DO close all joint bank accounts. DO NOT put money into a joint bank account and continue to use it as if it was solely owned. It doesn’t matter what was agreed upon in writing or verbally as to the ownership of the account. The only sensible thing to do is to close down all joint accounts and split the proceeds.
  • Real Estate DO NOT continue to jointly own real estate. If one of the ex-spouse has the ability to buy the other one out, then do it. If neither party has the means to support the house, then sell the house and split the proceeds. I don’t care if the economy is horrible and you sell it at a loss. You should never jointly own a house after a divorce. It is simply a recipe for disaster and more litigation. It’s good for divorce lawyers but a rotten deal for the parties.
  • Retirement Accounts  DO split retirement accounts immediately if possible. If the divorce settlement calls for a division of one party’s retirement account, execute a Qualified Domestic Relations Order (QDRO) right away to split the retirement account. If you forget about it or postpone it, it will be that much harder down the road to access the value of the retirement account at the time of the divorce. Split the retirement account when possible and you will have more control over it and you can control the investments.
  • Social Security DO apply for dependent benefits if you or your ex-spouse are 62 years of age or older, you were married for at least 10 years, and the divorce occurred at least 2 years before you make a social security claim. The 2 year waiting period does not apply if you or your ex-spouse was already receiving retirement benefits prior to the divorce. Please contact a social security specialist and order a copy of your social security statement for more details.
  • Credit DO contact all 3 credit bureaus (Experian, Equifax and TransUnion) to place a “credit alert” on your credit reports. During marriage, your ex-spouse most likely know enough detail about your life to get hold of new credit, such as your social security number, mother’s maiden name, old addresses, etc. It’s probably unlikely that they will try to open up credit in your name and in effect, commit identity theft, but there are more and more cases each day where close family members or spouses are doing just that. Protect yourself with a simple letter to the credit bureaus and lock down your credit.
  • General Finances DO wait 6 months to one whole year before making any big financial moves or decisions. I gained this insight through celebrity financial advisor, Suzie Orman. She suggests, and I agree that you shouldn’t make any financial decisions for 6 months to a year after a divorce. This is because this time period is an emotional time in your life and you do not want to make any financial decisions by thinking with your heart. DO keep all your money safe during this time by putting it into a savings account, CD, or money market account. Don’t invest in any investment accounts, life insurance policies, or real estate during this time. Simply keep it safe in a guaranteed interest account.

Many of my clients are small business owners.  In addition to the good advice above business owners have particular problems.  Problems that are best avoided by pre-divorce planning; read about those issues here.

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