Don’t Get Spooked by These 3 Financially Scary Divorce Situations
By: Catherine Shanahan, CDFA
Divorce is scary, and rightfully so. The life you thought you had or wanted with your partner took a turn you weren’t really expecting. Here are a few frightening financial mistakes that you want to avoid.
Execution or Follow Through of your Marital Settlement Agreement or Court Order.
It’s so easy to say, “I’ll do it later.” Later comes and goes so quickly and you may be stuck not being able to retire from your job because a QDRO was never processed.
Imagine, years go by after your divorce and you never get around to dividing the retirement accounts as agreed or ordered. Your portion of these divisions may not be available to you, and the necessary paperwork to complete the divisions is now complicated by time which, in turn, becomes very expensive.
In addition, you now you have to hunt down your ex-spouse for signatures and possibly hire an expert to calculate agreed division amounts after considering years of market fluctuations and increased contributions. This could take years and could apply to other accounts that are listed in your agreement.
Update and Verify the Beneficiaries on your Life Insurance Policies.
This is scary and can work for you or against you depending on which side you are on.
Imagine you are the owner to a life insurance policy, and you get remarried. You have additional children and your ex also gets remarried. Ten years later you die. Your new spouse of ten years isn’t eligible for your life insurance proceeds because you never updated your beneficiary. Now, your ex-spouse doesn’t complain, but imagine how your current spouse feels.
Understand the Difference Between a Fair and Equitable Distribution of Marital Property. (If you are in an equitable distribution state.)
What one person may deem fair isn’t necessarily equitable. It is so common to want to get a quick divorce. The thought of spending so much money negotiating is terrifying. Consider the cost to signing away assets without considering the long-term effects.
Think about this: you want to keep the marital home. Your spouse says “OK, you keep the home and I’ll keep the retirement account.” Fair enough. Is it really? The house has net equity you’re told, but what about a few years later when you need a new roof? What if you need cash? How about this scenario?
Here’s another scenario: you take the annuity, and your spouse takes the bank cash accounts. Seems fair. You assume they have the same value. Two years later you need money from the annuity, but the surrender charge is disheartening. There is no fee to withdraw from a cash account, so you realize that taking the annuity instead of the cash left you in a deficit.
Solution: Follow-up on every asset and debt in your final agreement. Make sure your agreement specifies next steps and the timing of next steps for your protection. Obtain the necessary paperwork to effectuate divisions and sign these documents at the same time you sign off on your divorce agreement.
Solution: As soon as your agreement allows, update the beneficiary on all your insurance policies. Keep a confirmation of this request and update with your will. If your Divorce Agreement or Court Order provides for annual verification of beneficiaries on your spouse’s life insurance policy, mark that on your calendar on make sure to follow-through on the verification.
Solution: Be sure to invest in financial clarity. Knowing the difference between what is fair and what is equitable could be life-changing. The most efficient way to obtaining this information Is with your MDS Financial Portrait.
Financial clarity, details and execution are the three areas you should concentrate on in these fearful times. Don’t skip any steps. Before and after you sign any agreement protect yourself to avoid any nightmares in the future.
Catherine Shanahan is Co–Founder of My Divorce Solution. With over 30 years of experience in the financial industry, Catherine serves My Divorce Solution Clients as a Certified Divorce Financial Analyst (CFDA) and trained mediator. A Professional Daily Money Manager, Catherine is also a former VP of the Bucks County Collaborative Law Group, American Association of Daily Money Managers, Institute for Divorce Financial Analysts (IDFA), National Association of Women Business Owners, advisory council of Support Pay,and the Association of Divorce Financial Planners.
As a mom of five and financial expert, Catherine’s experience with divorce left her wishing for better information, better resources, and a better process for the financial separation that comes with divorce. As a result, Catherine co–founded My Divorce Solution –the company she had needed in her divorce.
My Divorce Solution helps clients secure their worth and protect their wealth with the Divorce Financial Portrait. Our Divorce Preparation Platform is a data driven solution that connects your financial assets to the divorce legal system.
See what you can expect from your divorce with our Free Divorce Assessment.
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