Divorce, Remarriage and Their True Cost
Whether you’re getting divorced, recovering from one, or watching it unfold for a friend or family member, consider these steps for minimizing the financial consequences.
The first financial shock to face is the cost of the divorce itself. You’re already splitting assets; when you add a messy divorce with high legal fees, it becomes a considerable financial and emotional drain. It’s vital to have someone on your side that has a handle on a financial exit strategy that meets your needs.
Start with a complete inventory of what you own. Assets should include retirement plans, savings and checking accounts, properties and pensions, business interests, and inheritances. List any financial obligations or debts that you and your spouse may have incurred. Document each item by gathering tax returns, paycheck stubs, trust instruments, bank and brokerage statements, insurance policies, and property deeds to arm you with the knowledge needed to help make the right financial decisions.
Splitting the assets of your marriage will fall to the legal process; however there are tactical steps you can take to prepare. It is often recommended to split what you have across all assets as opposed to a scenario where you take the house and I take the cash. If neither of you has an emotional attachment to the family home, selling it could be preferable. A sale of other shared, non-liquid assets may also be advisable.
Splitting IRAs and 401(k)s can prove problematic. If either of you has a retirement account, it’s vital that you sign a court-ordered qualified domestic relations order (QDRO), which spells out exactly what percentage of the account each of you will receive. This document allows you to roll over your agreed-upon share into another IRA without incurring early-withdrawal taxes, as long as you do so within 60 days of receipt of the QDRO.
You need to update the beneficiaries in your will and life insurance policies as well as the person to whom you’re granting a power of attorney should anything happen to you. Be sure to follow up on any debt you may have incurred during the marriage. Although the responsibility to pay may fall to your ex-spouse, your name may still be tied to the account. This can have repercussions on your credit should he or she default on payment.
If you’re covered by your spouse’s health insurance plan, under federal law you can continue that coverage for up to three years by enrolling in COBRA, although you’ll be responsible for making the payments. Social Security can also come into play. If you were married to your spouse for over ten years, you can claim spousal benefits even if your former partner remarries. But if you remarry, you can’t claim the benefits unless your new marriage ends in death or divorce.
Once the divorce is finalized, the next chapter begins. Start with what you spent over the past year and try to forecast your new situation as to what would be a realistic budget. Your goal in the end is to have a new financial strategy — one based on a new life chapter.
For more information, contact The Menashe Morley Group in the Rancho Santa Fe office at 858-381-8113.
The Menashe Morley Group, serving the community for over 30 years: David Menashe is a Senior Vice President and Wealth Management Advisor, and Bruce Morley is a First Vice President and Wealth Management Advisor and John Naviaux is a Financial Advisor for Merrill Lynch, Pierce, Fenner & Smith Incorporated.
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Photo by Andy Templeton