Contributed by: Jacki Roessler, CDFA®
Your divorce is final! For many couples, getting divorced takes so much time and effort, it practically feels like a part-time job. While it might be tempting to quickly close the door on this unpleasant chapter, you actually need to do the opposite.
It’s important to understand that your divorce decree is only binding on you and your ex. It isn’t binding on third parties such as insurance carriers, retirement plan administrators, credit unions and credit card companies. Regardless of what your Judgment says, third parties aren’t bound by your divorce decree. Let’s suppose your ex-spouse was supposed to make the payments on the mortgage (currently in both of your names) and she decides to stop. The lender isn’t going to care that your divorce decree says she was supposed to pay. Your name is on the loan, therefore, you’re responsible. The same is true for pension plans, retirement accounts, etc.… If your ex-spouse dies, remarries, retires, moves money to a different account or stops making insurance payments before you tie up the loose ends, you may end up getting significantly less than what you worked hard to agree upon. Time is your enemy.
Tracking asset transfers
First things first, create a document that lists all the assets/debts that are being transferred as well as all the details. Since we work with such a large number of post-divorce clients at the Center, we often create a transition table or spreadsheet to track paperwork and follow-up. Again, follow up is key as once your Judgment of Divorce is signed, there is little incentive for your ex-spouse to cooperate with any transitions.
Prioritize your list of “do it now” versus “do it later” items
Not all post-divorce tasks should be categorized as “do it now” items. Some might be “do it later” such as re-financing a mortgage or getting help with investing your settlement. Others are definitely “do it now” such as making sure your ex’s employer has received notice you want to continue your health insurance coverage through COBRA. Another important “do it now” item is closing all joint credit card accounts. Again, you don’t want to be responsible for debt that isn’t yours and you certainly want to be in control of your own credit rating. Be careful to note any items that have a written deadline in your divorce decree.
Also keep in mind that everyone’s list of “do it now” versus “do it later” might be different. If you think mortgage rates are going to up, for example, it might higher on your list than someone who is more concerned about building a better credit rating than interest rate fluctuation. Same is true for those that are ready to develop and implement an investment strategy tailored to their new lifestyle and circumstances.
A word of caution for the “do it later” items. Put a deadline in place for yourself to make sure these items actually get done. It’s shocking to learn how many people wait more than 10 years to get their QDRO drafted, for example. Similarly, during times of market volatility such as we’ve been experiencing, novice investors sometimes choose to sit on the sidelines. Since no one has a crystal ball, this wait and see approach –called “market timing” is generally a losing proposition. Many market timers miss out on the largest days of investment gains in the stock market which can seriously impact their retirement objectives.
There IS light at the end of the tunnel
There will come a day when everything is resolved. It will surely come sooner and with much less aggravation (and chance of post-judgment legal fees) if you develop your strategy now.
Jacki Roessler, CDFA®, is a Divorce Planner at Center for Financial Planning, Inc.® and Branch Associate, Raymond James Financial Services. With more than 25 years of experience in the field, she is a recognized leader in the area of Divorce Financial Planning.