By Diane C. Pappas, CDFA
You just went through a grueling divorce, which may have been the worst thing you have ever experienced in your life. You are mentally and physically exhausted and you say to yourself, “ I just need a break from all this”. You file away the separation/divorce agreement (in MA we call it a Separation Agreement) in a box and you put that box in the darkest corner of the basement. Out of sight, out of mind right?
Wrong. Even though your marriage is over and the divorce is done, you still need to do a few more things to take control of your life. If you don’t want to end up back in court in a few months, there are some important steps you need to take before you can put the whole divorce behind you.
1. Read Your Separation Agreement
This may sound like a no-brainer, but chances are you never really read the agreement to the point where you fully absorbed and understood everything it said. After all, you were probably not in the best state of mind. You were just going through the motions hoping that your attorney covered all the necessary things and you signed the agreement just to get it done. There are most likely some things that need to be taken care of to fulfill the requirements of the agreement.
2. Implement Action Items in Your Agreement
Time is of the essence when it comes to making sure that the action items listed in your agreement are completed ASAP. Some of them may say something like, ‘within 60 days of signing this agreement…’ It is in your best interest to put together a list of all the action items and determine what needs to be done to complete them. Don’t rely on your attorney to do this. They may have moved on to another case and while they do their best to follow-up, things can fall through the cracks. This is your chance to take control and take one of the first steps necessary to transition into your post-divorce life.
Some of the most common items that need immediate attention can include, but are not limited to:
- The QDRO – Qualified Domestic Relations Order. This is a legal document that is usually prepared when a ‘qualified’ retirement account is to be divided per the separation agreement. It typically includes employer sponsored defined contribution plans like a 401(k). A QDRO is not required for the division of an IRA, but some custodial banks, like Fidelity, are using them, so make sure you know what is required for the IRA in question. While a QDRO or a DRO – used for defined-benefit plans (pensions) and 403(b) plans, – should have been prepared and approved prior to the signing of the agreement, it is often left to the very end. Without a court-ordered certified QDRO in place, you are not guaranteed to receive your distribution of that asset if your spouse should meet an untimely death. It is obviously the intent of the agreement that you are entitled to receive a certain amount (alternate payee), but without a recorded order in place, the ‘Plan’ is not legally obligated to fulfill that intent.Stay on top of the preparation of the QDRO. It may take anywhere from a few months to a year in some cases, for the actual transfer to take place. It is typically the responsibility of the spouse who has the plan to effect the transfer of the agreed to amount, to satisfy the QDRO. If you are on the receiving end of the QDRO, don’t rely solely on your spouse to take care of this.
- Life Insurance – Again, if your spouse is required to obtain a life insurance policy per the agreement to protect the support order in case of death, and it wasn’t done prior to the signing of the agreement, well, we know where this is going.
- Often times, one spouse is required to apply for life insurance “within 10 days of the execution of this agreement”. Make sure this is done!
- Reasonable efforts must be made to insure that the life insurance policy takes effect within 90 days of the agreement – again, stay on top of this;
- Obtain all copies of communication regarding the life insurance application and make sure you obtain proof that the policy is in effect for the amount agreed to. If you are the owner, make sure the policy states that, and confirm that you (or whatever is stated in the agreement) are the beneficiary.
- Health Insurance – Need I say more? Make sure that the terms and conditions of the agreement are in place.
- Changing the Title on the Deed to your home – Tenants by the Entirety is for married people only. Often times when a couple will continue to own the home jointly after the divorce, the title on the deed needs to be changed to reflect the new ownership status. Joint tenancy or Tenancy in Common are the preferred choices.
- Understand what ‘Rights of Survivorship’ means. If the deed says with rights of survivorship, that means if you die, your equity position goes to the other owner – the spouse you just divorced. That’s probably not what you want. Ensure that your equity position will be transferred to the heirs you want – your children or another family member on your side.
- Make sure new deed is recorded at Registry of Deeds
The above listed ‘Action Items’ are the most common, but there can be many more. If you are unsure about anything, review your list with your attorney. Most attorneys will provide you with their ‘To Do’ list after the divorce, but it’s always best to prepare your own as well.
3. Protect Your Interests and Sever all Ties with Your Ex
This last item on my list of the top three is all encompassing. I could have named this article 20 of the most important things to do after a divorce, but then this wouldn’t be a blog, it would be a book. The list is almost endless and it really depends on your own individual situation. The point is, your separation agreement does not protect you unless you the take the steps to protect yourself.
For example, if you have a joint account and your spouse knows the username and password, don’t assume that they won’t try to access that account at some later date. It happens and while it’s not the morally correct thing to do, technically, their name is still on the account, so legally, they haven’t done anything wrong. This happened to a friend of mine – no really, it was a friend, not me –– and he had no recourse and the ex-wife suffered no repercussions. (What he neglected to tell me was that he was behind on the child support payments, so she was just taking what she thought was legally hers, BUT still… that’s not the best way to go about it.) Consider yourself forewarned.
To that end:
- Change All Beneficiaries – on every single account you received per the separation agreement and every individually owned account or policy;
- This includes all retirement accounts, including pension plans if not part of a QDRO;
- All brokerage accounts – typically designated ‘TOD’ – Transfer on Death;
- All checking/savings accounts – yes, even these accounts should have a TOD designation to named individuals or trusts;
- Life insurance policies not addressed in separation agreement;
- Update Home Owner Insurance policies if applicable, Auto Insurance;
- Update Driver’s License and Social Security information if there is a name change.
- Meet with Your Accountant – provide him/her with a copy of your separation agreement so present and future tax issues can be addressed.
- If you are the recipient of alimony, your accountant will need to estimate your quarterly tax payments due on 4/15, 6/16, 9/15 and 1/15 – don’t forget – you owe taxes on alimony and it is your responsibility to pay them quarterly.
- Prepare a New Will and other Estate Planning Documents;
- Now that have a settlement, make sure your heirs get it!
- Revocable Trusts with children (or trust, depending on age) as beneficiary
- Health Care Proxy
- Durable Power of Attorney
- Close all joint accounts ASAP;
- Checking/savings accounts
- Credit card accounts
- Utility accounts
- Club memberships
- Change all usernames and passwords;
- Don’t forget about social media accounts…you don’t want your ex posting something nasty on your Facebook page!
- Amazon Prime
As you can see, there are many things that need to be attended to after the divorce. Most of these can be done on your own, but when in doubt, please consult a professional. An estate-planning attorney should handle things like writing a new will and preparing essential estate planning documents. Tax planning issues should be handled by a tax professional.
I can’t stress enough how important it is to be proactive after your divorce. Being informed of all the pending action items in your agreement and taking action will put you back in control. Even though you may be struggling emotionally, having a sense of control in this one aspect of your life can be an empowering experience. The way to show the world (children, family, friends) and more importantly yourself, that you are okay, is to get back on your feet. Put the past in the past (or the basement) and focus on moving forward one day at a time.
Every divorce is unique and laws and practices vary from state to state. Be sure to consult with your attorney, financial professional, accountant and other professionals in your state to understand what applies to you and what is best for you and your family. Taking information out of context generally has negative consequences. This article is not meant to provide legal or financial advice.