You signed the settlement agreement but you’re not settled yet. There’s still lots to do! You need to divide accounts, change insurance or beneficiaries, get a new estate plan and for some of you, move out of the house!
Many people get hung up at this point, pondering “What will my life be like now?” They just can’t seem to move forward. Here’s my advice, “Get up and move forward.” Time is your worse enemy. It can and will cost you real money.
As a Certified Divorce Financial Analyst, I’ve seen people years after their divorce asking why they never got their share of the accounts awarded to them. They mistakenly thought their spouse or attorney would magically send them their share. Attorneys don’t do this and your spouse probably won’t — you need to take responsibility for your share.
Post-divorce, people routinely miss deadlines they didn’t even know about and ultimately cost them thousands of dollars. And worse, you could be playing into your spouse’s hand by waiting. S/he could easily use your procrastination to move accounts or hide money. By waiting, you stand to lose thousands of dollars and only gain multiple, expensive trips back into the courtroom.
Months after her divorce, Helen sought help from a CDFA only to find out that she would not be able to continue health coverage under her husband’s plan and have to wait 6 month to get coverage under the Affordable Healthcare Act (ACA). She unnecessarily had to pay thousands of dollars to obtain coverage until she could apply under the ACA.
One way to move forward is to get help. First, know your divorce settlement agreement. If there is something you don’t understand, ask your attorney. I know you’re tired of attorney fees, but missing something in the agreement will cost you much more that the fee. Next, enlist a firm like mine to review your agreement, help you set up new accounts, transfer monetary assets and property, and define new beneficiaries.
Your agreement might include a Qualified Domestic Relations Order (“QDRO”, pronounced quadro), it’s there because a qualified plan like a 401k or pension plan must be (by law), divided as part of the agreement under this specific type of order. Your qualified plans can’t be divided until an attorney or QDRO specialist submits one. If the agreement awards you part of your spouse’s qualified plan, you can’t get that part until a QDRO is filed.
Ken was awarded 60% of his ex-wife’s 401k plan. He’d spent the time after his divorce taking care of his mom and dad in Florida. Eventually he wanted his share, but his attorney never filed a QDRO. And even worse, his share didn’t exist anymore. His wife left her company, moved the funds to her IRA and then withdrew them to purchase a home. Ken had to hire an attorney to help him get his share, and that cost him. Ken was only able to get a promissory note. Ken has not choice but to agree to receiving $1,000 a month from his ex wife because she didn’t have the money to replace his share of the IRA anymore. If she doesn’t pay, he’ll have to go back to court.
Assuming the QDRO is filed correctly, the 401k plan’s custodian will send you a letter informing you that your share has been moved to an “Alternate Payee Account”. But you need the money from the 401k? There may be a way to avoid early withdrawal penalties but you’ll still pay taxes on the withdrawal. If you take the wrong steps, you’ll incur a 10% penalty from the IRS in addition to taxes on the withdrawal.
Brenda’s agreement awarded her 50% of her husband’s IRA, a non-qualified plan that typically doesn’t need a QDRO to be divided. However, it was now a full year after the divorce and by this time there was no money in the account. Her ex moved the funds to a new account and then withdrew $50,000. Brenda had to hire an attorney to help her get her share, and that cost her. For her and her children, it was like getting divorced all over again.
Oh if these were the only stories I could tell you! One husband borrowed under a joint Home Equity Line of Credit after signing their divorce settlement agreement, which required that the account be closed. Fortunately the wife found out. But that meant a costly trip back to court, too.
The last step in your post-divorce process is planning how you are going to manage the money and property you now have. How much time can you take until you need to work again? Get help from a financial planner to save money. The expense of a planner can be less than the costly mistake you could make without it. A Certified Financial Planner or CDFA can help you project various paths and decide on the best one for you. If you have money to invest, be sure you understand who will be making investment decisions and how expenses are assessed. You don’t want a “back end fee” or “surrender charge” to surprise you when you need the funds. I wrote an article about this in Vetta Magazine about a year ago at http://www.vettamagazine.com/shopping-for-a-financial-advisor-do-it-right/. Also there is a fantastic list of questions for consumers on the CFP website. Here’s the link http://www.letsmakeaplan.org/cfp-pros-their-expertise/selecting-an-advisor
Divorce Planning of Austin will work with your attorney and tax professional to help you make better financial decisions during and after your divorce.
Hypothetical results are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.
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