Barry Weissman, CDFA, Certified Divorce Financial Analyst, offers these tips to help you sidestep some common divorce-related problems.
1. Copy Your Records
Before your divorce, be sure to make copies of all of your financial records. Keep them in a safe place away from your spouse. These records include, but are not limited to, personal and business income tax returns (last three years), business records, recent statements from investment firms, banks, and pensions, pay stubs, life insurance information, annuities, credit card statements, stock certificates, and receipts for a recent purchase of larger items. Copy anything you feel might be relevant. If you have the misfortune of being in litigation, having this information at hand might save literally thousands of dollars in Discovery expenses.
2. Obtain Copies of Credit Applications
Obtain copies of any credit or mortgage applications from your bank or creditors, particularly those having been completed 12 months prior to your separation. If the application was jointly completed, it should list assets, liabilities, and income for both spouses. Those applying for loans or credit tend to list all possible assets and income in order to qualify. If you are in litigation, this information might be a good source of asset discovery, saving you money.
3. Identity Check
Verifying accurate personal, financial, and business information is critical to maintaining your identity. Verify such information from data reporting services including Experian, TransUnion, and EQUIFAX, as well as banks, investment houses and insurance companies. Confirm your name, address, and other personal information. Google yourself. What information about you is available on the internet? Contact the site’s “Webmaster” where you discover inaccuracies. Provide a forwarding address to the USPS and applicable utilities immediately after you or your (ex) spouse plan to move.
4. Marital Debt
Debt(s) that were obtained in the name of both spouses before your divorce remain the obligation(s) of both parties after a divorce. Creditors are not party to your separation or property settlement agreement; a court order will not relinquish the responsibilities the debtor(s). In other words, if your ex-spouse does not pay a joint debt, a debt that he or she was responsible to pay according to your divorce decree, then you remain responsible for that debt.
5. Cancel “Joint” Lines of Credit
If your divorce settlement makes your ex-spouse responsible for the payment of a “joint” debt, continue to monitor that account verifying that payments are being made in a timely manner and in accordance with the terms of the creditor. If your ex-spouse is late or defaults on a payment, it can adversely affect your credit.
6. Understand Your Social Security Benefits (U.S. Rule)
If you have been married 10 years or more, you are entitled to half of your spouse’s benefit or 100% of your accrued benefit, whichever is greater. This does not impact your spouse’s benefit in any way; this is not a negotiation point in a divorce.
7. Follow the 5 Ds for Alimony Deductibility (U.S. Rule)
If you want a deduction for alimony paid by you, it must be paid in dollars under a court decree or written agreement. Such payments end either as specified by the court decree, on the date of your former spouse’s death, or remarriage. Remember: Alimony received is taxable income to the recipient, deductible to the paying ex-spouse. Further, when payments commence, you must maintain your distance. You cannot reside in the same household as your former spouse.
8. Guarantee Your Child & Spousal Support
When receiving child or spousal support, be sure your former spouse is covered under long and short term disability insurance. Own and be the primary beneficiary of a life insurance policy on your soon-to-be-ex spouse. Either transfer ownership of an existing term policy or cash value life insurance contract. Before transferring a cash value life insurance contract, check with your accountant to determine any potential tax consequences. Once in your name, you should pay the premiums. You may be able to negotiate an increase in support to cover such premiums. Be sure your ex applies for and is issued coverage before the divorce is final.
9. Dividing Marital Property
Generally, judges expect divorcing couples to have figured out on their own, perhaps with the help of a divorce mediator, the division of marital possessions. Be as specific as possible in the Property Settlement Agreement; who gets what. Attach a comprehensive list clearly identifying the item and the recipient thus avoiding confusion later.
10. Review Beneficiary Information
After your divorce, remember to review the beneficiary information on your company 401(k) and other employer provided retirement benefit plans, individual retirement plans, annuities, life insurance policies, individual designated beneficiary accounts and so forth. Often we re-title assets but forget about changing beneficiary information on accounts that are not directly impacted by the divorce. If you are naming minor children as beneficiaries, assign a custodian of your choice – remember, minors are not legally allowed to own securities. You must revisit all of your estate planning documents specifically include in this review your Will, Trusts, Advanced Medical Directive, Financial Durable Power, and General Durable Power of Attorney.