Let’s face it, divorce is very difficult under the best of circumstances. It can be mentally, emotionally and clearly financially draining. Once it’s over, most people don’t want to think about anything related to it for a long time. In reality, it can be one of the most important times for financial and estate planning.
There is a long list of things that need to be updated after a divorce, and today we will cover 10 of the most important ones.
1. Life Insurance Beneficiary Designations: Updating your beneficiaries on your life insurance policies needs to be done immediately. (This should actually be reviewed every year along with all of your beneficiary designations). I can tell you countless horror stories about people who never got around to changing life insurance beneficiaries after a divorce, and left their death benefit to an ex-spouse instead of their current family. State law determines if your “Ex” still gets your life insurance proceeds. While many states have now enacted laws to remove a former spouse, plenty more have not. If your spouse is required to pay you support, your divorce decree should always require your ex-spouse to have life insurance on themselves where you are the owner of the policy. As the owner, you can ensure payments are being made, and any changes require your consent.
2. IRAs: Your IRA, unlike your retirement plan, allows you to name any beneficiary you want without spousal consent. You must change it yourself in order to name a new beneficiary. If you remarry, your new spouse will not automatically become the beneficiary of your IRA.
3. Retirement plans: In a retirement plan, your new spouse automatically becomes your beneficiary unless they agree to sign off on it. Remember, a prenuptial agreement does not cause a new spouse to give up this automatic right regardless of what they agree to in the document. Only a spouse can waive out of being a beneficiary, and a spouse does not sign a prenup, a fiancée does. Therefore it doesn’t matter what they agree to regarding your retirement plan. Whatever they agreed to regarding your retirement plan no longer applies the day you get married.
4. Estate documents: Your ex-spouse may likely have been your Power of Attorney, Trustee of your trust or the Executor of your will. Obviously these documents need to be updated immediately after a divorce.
5. Meet with your CPA: Review what your taxes may look like going forward. A divorce can put you in a very different tax situation going forward so it’s important to review everything so that there won’t be any surprises come April 15th.
6. Assemble a new team: You likely will not want to use the same advisor, CPA, estate attorney, etc. as your ex-spouse. You may want to start fresh with your own team of professionals.
7. Create a budget based on your new situation: Some of your expenses will go down while others will go up. Make sure you have a good understanding of what your monthly and other periodic bills will be.
8. Recalculate your retirement projections: Know that the assets have been divided, you will need to see what the long term impacts may be to your overall retirement plan.
9. Transfer on Death (TOD) Accounts: These are investment accounts that automatically are made payable to a named person when you pass.
10. Don’t forget to check your credit: Unfortunately, many times divorces are due to financial hardships that cause problems in the marriage. Make sure your credit is intact after your divorce.
In a perfect world, your advisor and/or estate planning attorney would be a part of the process before you even get a divorce. They view the process through a very different lens than a divorce attorney does. Having their input in advance can potentially save you time, money, and problems during an already very difficult stage of your life.
T. Eric Reich, CIMA, CFP, CLU, ChFC is president and founder of Reich Asset Management and can be reached at 609-486-5073 or firstname.lastname@example.org.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.