Divorce and your finances
Going through a divorce can be one of life’s most painful experiences. In addition to the emotional stress, you have to make your way through the process of undoing the many financial connections you and your spouse have created over the years.
If you’re facing divorce, you may want to consider these steps and discuss your situation with your financial and legal advisors:
Taking stock of your finances
Instructions: Click each item to learn more.
- Tax returns
- Bank, mortgage and investment account statements
- Pension and retirement account statements, such as 401k or IRA information
- Insurance and beneficiary information
- Prenuptial agreement
Know the cost basis of all your assets. As you gather your financial information, it will be important to know the cost bases for all your assets as well as fair market value so you can calculate after-tax values of your assets.
- If you are younger than age 59½ and need income from retirement accounts, discuss with your tax advisor ways to potentially avoid the 10% premature distribution penalty. For example, a Qualified Domestic Relations Order (QDRO) distribution directly to you from your ex-spouse’s employer-sponsored qualified retirement plan, such as a 401(k) (but not IRA), may avoid the IRS penalty. Annual contributions (but seldom earnings) inside a Roth IRA may be accessed without tax and IRS penalties (and only under certain circumstances).
- If you want your ex-spouse to remain a beneficiary, some accounts may require you to file a new beneficiary designation form after the divorce, even though he or she may already be named as a beneficiary.
Review and update estate planning documents
- Remove your ex-spouse as beneficiary, executor, personal representative, successor trustee, or agent under healthcare and property powers of attorney (as appropriate).
- Update your will. If you have minor children, consider leaving any assets in a trust for the children; you may want to name someone other than your ex-spouse as trustee.
- Thoroughly review both primary and contingent beneficiary designations; don’t overlook less common items such as:
- Disability insurance
- Long-term care insurance
- Company benefits
- If you know your ex-spouse’s estate plan, discuss it with your attorney to determine whether it may affect how you want your plan to work.
Watch for stress
If you or your children are having difficulty coping with the divorce, intervene quickly and consider talking with a qualified counselor or spiritual advisor.