Couples who have finally finished the often-rigorous process of getting divorced often have one thing in mind: get out and start anew. But while it’s certainly important to start finding some semblance of normalcy as quickly as you can after a divorce, acting too hastily may have unexpected repercussions for the future—especially when it comes to your finances.
Many divorced spouses often underestimate the impact their separation can have on their retirement. Below are 4 steps to protect your retirement assets during a divorce.
Decide What Happens to Your Retirement Plans
The Internal Revenue Service needs a Qualified Domestic Relations Order (QDRO) to divide the amount in a retirement fund between two former spouses. This document is a court order determining how your retirement assets will be divided, and is also typically presented to your retirement plan provider.
Executing a QDRO can be complicated, and unfortunately, many divorce lawyers don’t fully understand the process. It helps to consult the advice of a financial advisor and hire a divorce attorney familiar with this aspect of your case. Your attorney can tell you about all its nuances and rules, especially the fees, which can be obscenely high if you make a mistake in filing.
Change Your Beneficiaries
Thought your new will covers your retirement accounts? Think again. You should still change your beneficiary designations on all your retirement plans. Unfortunately, many divorced spouses make this all too common mistake, thinking their last will and testament takes care of everything.
Changing your beneficiaries is especially important if you named your former (or soon-to-be) spouse as one of them. Despite your divorced status, your ex will still inherit your retirement money upon your death if it says so in your account. And even if your spouse respects your wishes and gives the money to your kids, he/she can be liable for a tax payment for doing so.
Bottom line? Get your lawyer to execute this simple legal document.
Go Over Your Social Security Benefits
You can receive a portion of your former spouse’s Social Security benefits if you were married to your spouse for at least 10 years prior to the divorce. Now is a good time to compare your Social Security benefits with your ex’s, because you can only claim either one.
And if you decide to remarry, doing so before you turn 60 voids any chance you have of collecting your ex-spouse’s Social Security benefits.
Review Your Investment Portfolio
Now would also be a good time to look at your investment accounts and reevaluate your risk tolerance. There are many instances when a person’s risk tolerance for investment matches that of their spouse. Your risk tolerance may also be more aggressive due to the higher combined income you share with your spouse. As someone who’s single once more, your investment options now need to consider your current income, current savings, profession, and likely future.
Everyone knows divorce can take an extreme toll on your stress levels and emotions, but many people fail to grasp how big of an impact a separation can have on their future retirement. If you’re not sure how to secure your finances, talk to a qualified divorce attorney.
If you need assistance in matters of property division, let family law attorney Daniella Lyttle handle the job for you. Call the Lyttle Law Firm today to find out how we can help.