Our Monthly Tip, as featured in Family Lawyer Magazine:
January is an ideal month for those impacted by divorce to lay the groundwork for a successful year. Here are some foundational steps to consider taking in the New Year.
1. Create a sustainable financial plan
It’s important for you to have a clear picture of your finances and to implement a thoughtful long-term plan to help ensure that settlement proceeds and alimony funds will sustain your lifestyle. Some people might not have been aware of all the assets/accounts or cash flow during the marriage that supported their lifestyle if they were more passive on the financial/investment front. They may feel overwhelmed and intimidated at the prospect of taking control of their finances. A financial advisor can help organize finances, conduct an in-depth analysis, run cash flow and net worth projections, model projected rates of returns with inflation assumptions, and evaluate different lifestyle scenarios to help create a sustainable financial plan that can instill confidence in the future.
2. Establish bank accounts and build credit
Have you established your own individual banking accounts? Unless a settlement agreement or divorce decree provides otherwise, close joint accounts you may have with your ex-spouse and establish accounts in your name. Change login identifications and passwords you may have used during the marriage to protect your assets and your privacy. Open credit cards in your name, particularly if you have previously relied on your ex-spouse’s credit, so you can start establishing your own credit history.
3. Update estate planning documents
During times of transition, particularly involving a divorce, it’s critical to review all estate planning documents and beneficiary designations to be sure they reflect your current wishes and that an ex-spouse is removed if that is the intent or part of the settlement agreement or divorce decree. If so, it will be important to remove an ex-spouse not just from being a beneficiary of the estate, but also from acting in important roles under a will. Ask yourself: Are the people or institutions named to serve in your will the best choices for your family right now? If you do not have a will, the laws of your state will dictate where your assets pass and who will administer your estate, which may not reflect your intent and could likely benefit a soon-to-be ex-spouse if the divorce is not final. Powers of attorney and health care directives should also be updated so that ex-spouses are removed if desired, and the right individuals are poised to make important financial and health care decisions on your behalf.
Some documents can be changed while divorce is pending, while others must wait until the divorce decree is issued. Documents to consider include:
- Will and trusts (usually can be changed while divorce is pending)
- Power of attorney and health care directive (usually can be changed while divorce is pending)
- Retirement accounts and plans (usually cannot be changed while divorce is pending)
- Jointly named real estate and financial accounts (usually cannot be changed while divorce is pending)
- Authorizations to access digital accounts, including financial accounts, email accounts, social media accounts, etc. (usually can be changed while divorce is pending)
4. Revisit and review insurance coverage
When life changes happen, it is important to review insurance policies—both life insurance and property & casualty/umbrella insurance—to make sure you are adequately covered at a competitive cost, that the insurance is titled in the right names, that the beneficiary of the insurance proceeds is updated, and that the premiums continue to be paid by the responsible party. To prevent an ex-spouse’s death creating a catastrophic void in child support, alimony, higher education costs, or other obligations it is often prudent to secure life insurance as part of the divorce settlement. After life insurance is purchased, it will be important for an independent insurance advisor to periodically review the policies to make sure they are performing as intended, and that the premium payments are being made on time to prevent a policy lapse.
5. Prevent the death of a family business
If you are a business owner, a buy-sell agreement or lack of liquidity could spell disaster for the business after divorce. To plan proactively, or even if a business has survived the divorce process, you will be well-advised to ensure that the business has a thorough succession plan in place for the future, including provisions that protect the business against the claims of any business partner’s ex-spouse. If a business owner suffers from a liquidity crunch during or after a divorce, a financial advisor can explore accessing personal credit to satisfy divorce obligations, which often can be an optimal solution that will not imperil business operations.
6. Engage the right team
During emotionally difficult times, the support of family members and friends can be invaluable. Despite being well-intentioned, however, friends and family members are often not equipped to deal with the complex tax, legal, and investment decisions that confront those impacted by divorce. Going at it alone can also seem overwhelming, especially if one spouse did not manage the finances and left much of the financial decision making to the other spouse. A team of seasoned professional advisors is generally best positioned to assist those navigating unfamiliar territory. A financial advisor, matrimonial lawyer, estate planning attorney, accountant, and insurance or other professionals can provide guidance, education, and support to holistically position those impacted by divorce for a successful future.
Please visit our Matrimonial and Divorce Advisory Solutions resource page for more timely divorce planning content.
This article is for general information only and is not intended as an offer or solicitation for the sale of any financial product, service, or other professional advice. Wilmington Trust does not provide tax, legal or accounting advice. Professional advice always requires consideration of individual circumstances.