Without exception, divorcing clients want to move on with their lives as quickly as possible after they complete the financial negotiations of their divorce. Moving on includes taking control of their own finances. There is a long list of things to do in order to take control of post-divorce finances before the divorce is truly final. To avoid some common financial pitfalls of divorce, I suggest you have your clients address the following:
- Insurance – Make sure that your clients won’t have a gap in health insurance coverage. If they were covered by their former spouse’s company plan, make sure that they have continuation under that plan if available. If not, have them shop for new health insurance. Divorce is considered a change in circumstances, so they do not have to wait until the next open enrollment period to enroll in a new healthcare plan. Determine whether they should purchase or maintain life insurance policies for the financial security of their children. Also, have them consider whether it makes sense to carry disability insurance to protect their income stream in the event of long-term incapacity.
- Estate plan – The clients should update their will and other estate-planning documents to reflect their current marital and family situation. The structure of their plan as a single person may be very different from what it was when they were married. They will also want to update their property and health-care powers of attorney – especially if they give their former spouse authority to make decisions on their behalf.
- Beneficiary designations – If they have life insurance or retirement plans, they must update the beneficiary designations if they currently name their former spouse. They may need to work with their respective lawyers to coordinate these with their estate plan.
- Income tax planning – Tax return filings can be complicated for the year of divorce. If they are still married on December 31st, they will need to determine if they will file a joint return with their spouse or if they will file as “married filing separately”. Clients should discuss income tax and liability protection issues with their tax and legal advisors. If their divorce will be final by December 31, they should work with their tax advisor to prepare a projection of their current year’s tax liability now that they are single. This should reflect their new filing status (single or head of household), child tax credits, new sources of income and deductions. They will use this projection to determine their withholding and estimated income tax payment needs.
- Mortgages and other loans – Make sure that your clients understand the terms of any debt that they are assuming before the divorce settlement is complete to ensure that loans are properly titled, assets securing the loans are properly reflected, etc. Have your clients notify lenders in advance.
- Banking and credit cards – Clients should notify their bank and credit card issuers of the divorce and take steps to ensure that neither of the clients can “clean out” joint bank accounts while the divorce is pending. Consider having your clients pay off and cancel joint credit cards if possible. If they have not had credit cards in their own name in the past, they should consider obtaining one immediately to begin establishing a credit history for themselves. Clients should request copies of their credit report and credit score to make sure that they are accurate.
- Passwords and privacy – For security reasons, it is imperative for clients to change all of the passwords and personal identification numbers (PINs) for bank, investment, retirement, medical, and other accounts that are in their name.
For further information on avoiding post divorce financial pitfalls or for information on Family Mediation, contact Deborah Beylus at South Florida Mediation Services at 561-789-0710 or www.southfloridamediationservices.com.