Divorce can be an extremely disruptive and exhausting life event. When a divorce is final, most want to shut out all memory of the process and move on to their new normal. However, what is very often neglected are crucial post-divorce action steps that may prevent unintended financial issues.
Mistake #1: Not updating your will and beneficiary designations.
It is entirely expected that most married couples list each other to be the recipient/beneficiary of their assets and property in the event of an unexpected death. Few realize, however, that after a divorce, those designations will remain in place unless deliberate action is taken. For example, assume you had your spouse listed as your beneficiary on your 401K retirement plan while married. Post-divorce, if you do not take steps to make a change, your former spouse will inherit the account in the event of your post-divorce death. Other similar accounts that require attention in this manner immediately after divorce include IRAs, 401K accounts, life insurance policies, wills, and estate documents.
Mistake #2: Not adjusting your investments, savings, and budget to align with YOUR new financial goals.
In most cases, any financial planning during the marriage was done for TWO people planning for ONE set of shared lifestyle and retirement goals. The divorce process typically makes those plans null and void and needs a complete reset. Once the divorce is final, it is imperative to re-organize your finances and create a new financial plan that reflects your personal (and new) post-divorce life. Waiting too long on this can lead to unintended consequences.
Mistake #3: Not executing any orders to divide retirement accounts pursuant to your divorce.
In divorce, there will often be a list of assets to divide per the terms of the separation agreement. The easy accounts to divide generally include cash and savings accounts. Retirement accounts, however, require additional work and often a special Court Order called a “Qualified Domestic Relations Order (QDRO).” A common mistake is to delay the process of dividing retirement assets under the notion that they will not be needed until later in life (at retirement).
By delaying the division of retirement accounts (401Ks, IRAs, pensions), the recipient spouse takes the unnecessary financial risk of receiving nothing. Specifically, should the owner of the asset pre-decease the recipient spouse, the retirement funds may go to another beneficiary. Additionally, the owner could take a loan or otherwise liquidate the account. Transferring any retirement accounts right away will assure that they are protected and eliminate any chance of losing the benefit entirely.
Mistake #4: Not hiring a CDFA™ with financial planning expertise (CFP®).
It is essential to hire a professional with financial planning expertise to be in your corner, helping you make pragmatic, emotion-free financial decisions to protect your new financial life.
The role of a Certified Divorce Financial Analyst™ with financial planning expertise, is to assist you, your divorce attorney, or your mediator in understanding how the financial decisions made today may impact your future.
About the Author
Adam Waitkevich, CFP®, CDFA™, ADFA™, Certified QDRO Specialist™