The financial decisions you make during the settlement process will significantly affect your financial future. That’s why it’s crucial to understand and consider the potential long-term financial consequences of your decisions before you agree to a final settlement.
In a previous blog I listed 8 common financial mistakes made during the divorce process – here are more:
– Not considering potential long-term financial and income tax consequences:
Ideally, you should focus on reaching a settlement that is consistent with your long-term financial needs and objectives. The terms of your settlement agreement will affect your financial well-being for the rest of your life. Divorce financial specialists are trained to look at potential alternative long-term financial outcomes. Even a qualified financial advisor can’t predict the future; however, based on our training and experience, we can help you identify those critical financial considerations that can help you reach the decisions that are most likely to be beneficial for you.
– Not considering the potential “penalties” on retirement plan distributions.
If you are taking a distribution from a 401(k), or other qualified plan, pursuit to a Qualified Domestic Relations Order (QDRO), take the cash distribution before rolling the balance into an IRA account. Once it goes into an IRA, you may be subject to a penalty for early withdrawal. Be sure to calculate the exact amount you need because you can only do this one time.
– No plan for paying off joint credit cards and other debt.
Not identifying all jointly held debt or agreeing to keep a card open and accessible to both of you could be a costly mistake. If everyone is “cooperating”, it works, but when a payment is not made on time or new debt builds up, the other spouse remains liable.
– Not establishing credit in your own name.
Before the divorce is finalized, you should have a plan in place for your future credit needs.
– Not acquiring life insurance to “insure” spousal and child support.
Require your ex-spouse to maintain life insurance to ensure continued support payments upon their death. This should be part of your written divorce settlement agreement. If existing policies are designated to be available to “insure” support, the beneficiary designations have to be reviewed to be sure they are consistent with the intent of the support agreement. Also, be sure that the death benefit is adequate to replace the amount of support that will no longer be available. In order to not let policies lapse accidentally – request that you receive a duplicate premium notice to avoid a lapse of coverage. For absolute assurance, consider taking a policy out on your ex-spouse where the premiums are paid by you and you are named as the beneficiary.
– Not considering your needs and options related to your health insurance and long-term care insurance –
If you are currently covered on your soon to be ex-spouses’ employer health plan, find out if you are eligible for COBRA coverage. If your spouse’s employer qualifies for COBRA, you might be eligible for extended coverage on their plan. However, you may be responsible for the premium payments, so check the monthly cost. If you are healthy, your own individual coverage may be more cost effective.
– Not reviewing your will, trusts and estate plan
Revise your will and make any changes for the beneficiary selections on trusts, IRAs, retirement plans, life-insurance policies and any other asset that requires a beneficiary, assuming you no longer want to leave it all to your ex-spouse. Also, change the executor named in your power of attorney and will.
– Not preparing a complete inventory of property and documents in safe deposit box.
This is commonly overlooked during the settlement process and not discovered until after the divorce is final.
Have you made one of these mistakes? Or are you about to? If you are in the process of going through your divorce, I highly recommend that you consult with a divorce financial planner who can help you avoid these mistakes.