Estate Planning During and After Divorce: Essential Financial and Legal Factors to Consider

There is a great deal of intersection between family and estate planning law. A dissolution of a marriage changes so many areas of life and clearly requires one to protect their financial and legal status now and into the future, especially if you plan to remarry.  This blog will consider some of the ways you can protect yourself during and post-divorce during this life-changing transition. As attorneys, we are definitely aware of the degree of uncertainty our clients experience. Our best advice is to gain back some of that control you may feel you have lost through divorce by understanding and being informed of your financial and legal options. The reality is that life will go on and your circumstances and those of your family need attention and care.

So . . . You are divorced or you will be divorced. Everything old is new now and your life is definitely like it was 6 months ago. Maybe it’s better, maybe it’s worse or maybe . . . it is just new and strange. If you have children, your first and foremost priority is taking care of them and making sure that they are OK and healthy, mentally and physically. Your life has changed, but so has theirs and you want to be there for them in the best way you can.

You may have moved or your spouse may have moved out. At any rate, your home is different now. During your divorce, you had to account for all of your joint possessions and divide them up as per what you agreed to or what the Court and your attorneys helped you decide. Your belongings are just yours now and maybe you’ve had to sell some property and split up the equity or you had to open a bank account in just your name. From here on, your credit will be your own and any property or things you buy will not be jointly owned, but just owned solely by you.

You may have split up ownership of a home and you may no longer own the same property you did when you were married, or it could now just be titled in your name alone. Or maybe you are now renting. Your furniture has likely been divided up and your kids now have a custody or visitation plan you and your ex need to follow.  Your income and cost of living will definitely be different. Your decisions will now be solo ~ personal, financial, and legal.

Here are some good ideas in general to help you with this transition to a single person and begin planning for your future.

1. Consider having a cooling-off period where no major financial decisions are made. Although divorce requires many life changes, it may often be advisable to hold off on making any major financial decisions. This gives you time to plan for your future and not rush into decisions based on emotions. Maybe don’t buy a new home quite yet, or use cash to buy big ticket items right away. Sit on these plans and make these decisions when you are fully aware of your financial needs and wants.
2. Don't be afraid to seek expert help. The financial challenges associated with divorce may be a significant cause of anxiety for many divorcing folks. With all the emotional aspects of divorce, it may be essential to get advice from a neutral financial expert to ensure that you are set up for success. Consider asking your attorney for a referral to financial advisor who specializes in divorce and take full advantage of such expertise. Make sure you and your children have health insurance fully covered and understood and if needed seek out an expert in this area as well. Our firm has trusted relationships with people in these areas and we are happy to provide referral options to our clients.
3. Understand your lifestyle changes can impact your finances. Many couples have found that it is difficult to live on two paychecks, and with a divorce, each one will now be living on a single paycheck, with some duplicated living expenses (two mortgages or rent payments, two telephone bills, etc.) Returning to the workforce may require day care expenses for the children, lunches out, additional car expenses, gas and car maintenance, and maybe purchase of additional work clothes. Consider monitoring your cash flow situation monthly for a while to determine if and how it has changed, and if you need to adjust your spending habits.
4. And above all, don’t forget about your health and mental care! Find trusted friends, family and experts to help you have a strong support system in this hugely important transition area. As important as taking a cooling time period before making any big financial changes, be sure to take all the time necessary and often, to assess and evaluate yours and your family’s health and mental wellness before making any lifestyle, living, career changes. Be good to yourself! 

Here are some additional financial matters that will require your immediate attention:

• Settlement Funds and Retirement Accounts

Perhaps you received a divorce settlement from the marital estate ~ for example, you may have split retirement accounts, proceeds from the sale of the house, or other marital assets were divided. Maybe you have a large chunk of money and need advice on how to invest it. Financial and tax counseling can help limit the risks of divorce and help you make sound decisions on how to invest your settlement. 

Retirement accounts in particular represent an additional “bonus” as split marital assets, because of the tax deferral benefit they allow. These are very valuable assets and because of the tax implications, require special care. In some circumstances, the IRS may allow distributions from certain types of retirement accounts that are free from the 10% penalty for early withdrawal, if accessed in the correct time period. Income tax is still required to be paid, so if you have to make such withdrawals, be certain to set aside additional funds to pay taxes. It may also be advantageous to roll over a marital-settlement retirement account to another account in your name. Again, it is important to consult your financial adviser and tax professional for advice and assistance on these essential retirement issues.

• Establish a Financial Plan

So, if estate planning is a blueprint for when you pass away, financial and retirement planning is the blueprint for your life. Just like a personal trainer, a good financial planner will keep you on track. Start this planning as soon as possible.

• Change past relationships

If your financial matters are still in the hands of your former partner’s financial service provider, consider making a switch. It’s good to get a fresh start, not only for yourself personally, but for your finances as well.

• Pay attention to your debt and your credit score:
• Consider Automatic Payments: Auto financing, credit cards, and other large monthly payments will stay on track with direct debit from an appropriate bank account. This will go a long way to preserving credit and not missing a payment that could cost a quick 20% or more in finance charges.

• Check Your Credit: You probably did this during your divorce case, but confirm that all jointly held credit cards are paid off. Write a letter to those companies disclosing the divorce. You might be tempted to simply close all former accounts and start afresh. Don’t. Closing accounts will actually lower your FICO score as this reduces your available credit capacity. Your credit score needs to stay as strong as you can get it to be.  Protect your credit score like you would a treasured heirloom. Your credit score should be valued as part of your financial portfolio! It will certainly dictate the interest rates you are qualified for on credit cards and mortgage loans and it can also aid you in securing lower premiums for car and home insurance.

• Refinance: If you are moving out of the marital home, insist that your former spouse refinance in his or her name. Make that condition a part of the settlement. Get your ex-spouse off of any joint debt if possible and part of your settlement agreement.

• Stay Alert: Follow up on agreements made in the divorce settlement. If your former spouse is supposed to be paying a debt that your name is still associated with, make sure they are paying that debt. Even though your divorce decree says they are responsible, the creditors do not honor that document.

So much to consider! In Part Two of this Blog, we’ll continue discussing additional financial and legal steps you can take to gain back the control lost during divorce. And as always, Blackwell Law, PLLC is ready to help you with this transition time and provide you with the services you need to be in charge of your life!