After divorce checklist for finances

If your divorce is finally nearing the end, you likely know that there are financial matters to tie up. Use this after divorce checklist to help guide you through the process. Of course, your situation is unique, and you may have some “loose ends” that are not on this list. We recommend working closely with your attorney, CPA and financial advisor to make sure you cover all the bases.

Download this post as a divorce checklist PDF to refer back to.

Immediately after divorce

General housekeeping

• Close joint credit cards and bank accounts.
• Complete a no-cost credit check.
• Update beneficiaries on retirement accounts and transfer-on-death accounts.
• Raise any necessary additional cash for expenses, paying off joint debts (as appropriate), and legal fees. There are many ways of raising cash during divorce, including:
  • Cash accounts.
  • Investment accounts. Research taxable gains and costs to sell.
  • Home equity or refinance. Refinancing may also be important to remove the former spouse from liability on a mortgage or home equity line. Check with your CPA on tax deductibility of interest expense.
  • Work retirement plan as part of transfer to you. This is called a “distribution to an alternate payee pursuant to a QDRO.” If done correctly, there is no 10% early distribution penalty, but you’ll still owe federal and state tax if you take money out.
  • IRA accounts if you are over 59½. Again, this would be subject to taxes but not to an early distribution penalty on withdrawals.
  • 401(k) or 403(b) work retirement accounts held with your former employers if you are over 55. Check plan provisions for availability, taxes and penalties.
  • Loan from a current 401(k) account. Be very careful about repayment provisions on this.

Cyber security & identity protection

• Change passwords (and make sure the new ones are complex).
• Use 2-factor protection wherever available.
• Implement credit freezes.
• Monitor withdrawals from bank and investment accounts and charges on credit cards.

Shortly after divorce

Initial legalities

• Change your name where needed. Download our name change checklist.
• Enforce your divorce decree’s stipulations.
• Monitor creation of any QDROs (qualified domestic relations orders) for your former spouse’s work retirement plans.
• Monitor deed changes if any real estate ownership has changed.
• Consult your divorce lawyer on lifestyle changes, cohabitation and expense tracking for any future potential spousal maintenance change.
• Consult your lawyer on how you should seek cost of living increases over time for any spousal maintenance and/or child support you will receive.
• Ask your lawyer if there are any other considerations for your situation.

Cash Flow Planning

• Evaluate cash reserves, and increase if appropriate.
• Create a budget for your post-divorce financial situation; then evaluate cash flow as compared to the budget.
• As appropriate, consider housing strategies.
  • Renting offers flexibility.
  • Will a home sale down the line free up funds for other goals?
• Retain Social Security number and statements of your ex-spouse.

Income Tax Reduction

• Hire a CPA if you don’t have one.
• Consult your CPA on the following and any other tax strategies that may apply for you:
  • Tax planning for the year of divorce. Opportunities to reduce tax are often available.
  • Allocation of all items of income and deductions between ex-spouses for the year of divorce.
  • Income tax withholding and any required quarterly tax payments.
  • IRA, Roth, and other retirement plan contributions.
  • Capital gains or losses.
  • Taxes on any retirement plan withdrawals.
  • Marginal tax rate planning.

Investments

• Implement QDRO for work plans. After that, for any tax-free rollover to an IRA or Roth:

• Ask about account type, after-tax contributions and net unrealized gain planning for any employer stock.
• Consult your financial advisor on the above research and best answers for you.

• If appropriate, split Regular and Roth IRAs. Use care to avoid a taxable event.
• If appropriate, split taxable investment accounts, considering allocation of tax basis.
• Invest to match your goals and preferences.

Risk Management

• Consider your health care planning and insurance options:

• COBRA
• ACA exchange subsidies (income based)
• High-deductible policy with health savings account
• Medicare and supplemental coverage if at or near age 65. (If you are 65+ and have not signed up for Medicare, consult with Medicare about the necessity of sign-up to potentially avoid future penalties.)
• Create a method to monitor life insurance (or other coverage) covered in the divorce decree.
• Review the need for any disability income insurance, life insurance or long-term care insurance.
• Carefully review your home/auto/umbrella/excess liability coverage with your insurance agent.

Ongoing once divorce tasks are settled

Cash Flow Planning

• Develop a financial independence strategy.
• If appropriate, develop Social Security and/or pension strategies. If you were married for 10 years or longer, you may qualify for a benefit on your ex-spouse’s record.
• Create a method to monitor spending. (We believe a draconian budget never works, but monitoring a plan that includes some pleasure and meets your goals may offer empowerment and a sense of security.)

Investing

• Develop your investment growth vs. protection strategy.
• Implement investment strategy.
• Monitor results and adjust.

Risk Management

• Monitor insurance coverages. Drop policies you don’t need. Increase deductibles as appropriate to reduce premiums. Make sure you are fully covered.
• Review your home/auto/umbrella/excess liability coverage each year with your agent.

Estate Planning

• Update estate planning documents.
• Coordinate beneficiary designations and asset ownership with your estate plan.
• Continue to update as your situation and/or preferences change.

Considerations for Next Relationships

As new relationships form, few couples bring exactly equal financial resources. Questions about second marriage finances include spending, contribution to the household and travel, control of monies, housing, etc.

If you’re getting married, strongly consider a prenuptial agreement. This is just as important for estate planning and expectation setting as it is for any divorce planning. Nevertheless, it may be a sensitive topic, and open communication is critical.

Housing

• Consider how housing will work. If you will live in a home you own:
  • Preserve non-marital property status (owner pays mortgage, property tax, home improvements). Check requirements carefully with your attorney.
  • The other spouse/partner may pay utilities, groceries, etc., to help equal contribution.
  • In setting the contribution of the non-home-owning partner, keep in mind that home equity has value that you may not want to just give away.

Assets and spending

• Retain investments as non-marital property. You can use funds, but generally, do not add funds to these accounts, i.e., “mix monies.”
• How will spending work? Consider your investments to be the “goose that lays the golden eggs” and keep them separate. However, you might consider the income from your investments to be the “golden eggs” and, if desired, add them to the “family” pot.

Estate plan

• Update your estate plan.
• If you own the home, you might wish to give your partner the right to stay in the house for 1-2 years if you pass first.
• If you wish to leave any funds to your spouse/partner, consult your attorney and CPA on the best assets to leave from a tax standpoint.