Five Financial Musts for When Your Divorce is Final
Posted in Divorce on August 9, 2017
Divorce is a journey, and often an uncomfortable, exhausting one. Regardless of whether your divorce was amicable or highly contentious, when it’s finally over, and you have that divorce decree in your hand, it’s likely that you won’t want to deal with anything divorce-related for a good long time. Unfortunately, before you can file your divorce papers in a drawer and try to forget about them, there are some things that you must do when your divorce is final in order to make sure your past doesn’t negatively affect your future.
Financial Moves to Make After Your Divorce
One problem with failing to take certain financial measures immediately after your divorce is that you may not experience immediate consequences, and by the time you do experience a consequence for your failure to act, it’s too late to undo it. Those consequences are often significant and can wreak havoc on your financial security. Let’s talk about what financial moves you should make after divorce, and how to get started.
Dividing Retirement Accounts
If your spouse worked at a job during your marriage that offered retirement benefits, those benefits are marital property, subject to division in divorce. However, the fact that your divorce decree says you’re entitled to those benefits doesn’t mean you’ll automatically get them. Here’s why.
Your divorce decree is the “private law” of your divorce, and you and your ex are bound to obey it. But it does not bind the administrator of your ex’s retirement plan to give you anything. In order for that to happen, you probably need a qualified domestic relations order, or QDRO. A QDRO is a specific type of order that tells the plan administrator how to divide a retirement plan such as a pension. Different plans require different provisions in QDROs, and it may take several drafts to get one that complies with a given plan’s requirements. You and your ex will need to stipulate to the terms of the QDRO, the judge in your divorce case will need to sign it, and it will need to be filed with and accepted by the plan.
If you don’t have a QDRO prepared and filed with the plan, nothing may happen for decades. But then your ex will retire, and the plan administrator will not be aware of an obligation to pay any portion of the retirement benefit to you. If you were counting on that money for your own retirement, you could be in dire straits.
Getting Off the Mortgage for the Marital Home
If your ex took the marital home in the divorce, your divorce decree almost certainly ordered that you should be removed from the deed and the mortgage. As with retirement benefits, however, the bank holding the mortgage is not bound by your divorce decree. You must take active steps to be removed.
Many people are not aware that this is a two-step process. It is very easy to sign over your rights to real property with a quitclaim deed that attorneys can quickly draw up. But your ex must also refinance the mortgage in their sole name. If you quitclaim the property to your ex but remain on the mortgage, you lose all rights to the property but retain your obligation to pay for it! This could drive you into bankruptcy.
Separating Credit Cards
You and your spouse (or a judge) will decide how to divide up any debt you accumulated during your marriage as part of your divorce. But your divorce decree doesn’t address debt racked up after your divorce.
Therefore, if you and your ex had credit cards on which both of you were authorized users, you need to cancel those cards immediately. Leaving the accounts open could potentially mean that your spouse runs up a bill and that you could be held responsible for it.
Updating Your Estate Plan
Your divorce decree won’t order you to update your estate plan, but you should still do it promptly. In Maryland, a divorce generally revokes a bequest to a former spouse (unless an intent to do otherwise is made clear in the will or divorce decree). But it’s still wise to update your estate plan after your divorce, and possibly before.
Even though the law might invalidate a bequest to a former spouse, failing to update your will to specifically exclude your ex could mean that if you died, your spouse would try to claim the bequest in the will, leading to costly and time-consuming probate litigation.
Remember, too, that estate plans include more than just your last will and testament. If you have a trust that lists your ex as a beneficiary, change that, too. And if you have granted your ex power of attorney over your health care decisions or finances, you will almost certainly want to rescind that authority.
You do not have to wait until your divorce is final to update your estate plan, and you may not want to. If you die the day before your divorce becomes final and your existing estate plan leaves assets to your soon-to-be ex, they will be legally entitled to those assets because you died while still married. So feel free to update your estate plan even before your divorce.
Updating Your Beneficiary Designations
If you have insurance policies or retirement accounts that require you to designate a beneficiary, once your divorce is final, you will want to update these promptly. Maryland does not automatically revoke a beneficiary designation on a life insurance policy after divorce, which means that your ex could receive a windfall if you were to die. If that thought makes you furious, contact your insurer and financial planner and request forms to change your beneficiary designations now.
The only exception to this advice is if your divorce decree requires you to maintain life insurance with your ex as the beneficiary for the purpose of securing your child support obligations.
Divorce is an exhausting journey, but don’t collapse at the finish line. Take care of these financial details so the journey into your new life won’t be filled with costly surprises.
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