Your divorce is final—what now? (part 1)

For many who have gone through a divorce, it is a difficult concept to accept—but the real work starts after the divorce is granted. Untangling years of joint finances as well as meeting Court ordered obligations and establishing new financial avenues to meet your needs in the future is waiting. Refinancing or selling a home, and finding a new home, moving in or out is waiting.  Refinancing a vehicle in your own name or finding new car insurance is waiting. You may need to get your own health insurance as most policies will not allow an ex-spouse to remain insured absent COBRA insurance which is expensive and only for a limited time. You may need to change the beneficiary on your life insurance or obtain life insurance—you get the idea. There is still a lot to do. If you can start separating finances or refinancing homes or vehicles while going through a divorce, it may not be a bad idea. HOWEVER, be certain you work with your attorney to do this legally and advantageously—or you will find some serious problems arise.

Here is some of what to expect:

Paying “Equalization”

“Equalization” is a word used to refer to an amount one spouse pays to the other to balance all the assets and debts of the marriage. For divorces with homes and retirement plans, there is often an equalization amount ordered by the Court so that each Party ends up with roughly half of the value of the assets of the marriage. The Court will likely designate how that equalization is to be paid. Sometimes there is cash and the amount to pay will be specified and a check or wire transfer or direct deposit must be made into the other Party’s account. You will want to know how you will pay or be paid by the other Party and when (“within 30 days”, “when the house sells”, etc.). Sometimes retirement accounts are used to equalize the assets and debts. If the retirement accounts are going to be used to balance everything, it is important to know that dividing these accounts can be a complicated process.

Finalized Divorce

Untangling Joint Bank Accounts and Dividing Financial  Accounts:

Any joint bank accounts will have to be closed or one Parties’ name removed from the account. Many banks require both Parties to either be present or by telephone to close or be removed from an account. Parties have to cooperate and work together to get it done. What happens with the funds in that account should have already been determined during your divorce and whoever is to receive those funds, must receive them. This may mean writing checks or wire transfers or direct deposits into an ex-spouse’s other account. Keep printed paper records of ALL transfers of funds as proof of financial transfers seem to disappear more often than one would imagine.

If investment accounts (stocks, mutual funds, etc.) are to be divided, the administrator of the investment account will have paperwork for the Parties to complete. The Court Orders should provide exactly how to divide the account (by percentage or an exact dollar amount).

Individual Retirement Accounts (IRA) and Thrift Savings Plan (TSP) accounts require paperwork from the administrator to be completed and returned and may require certified copies of divorce orders to divide the account. The IRA funds need to be transferred into a separate IRA in the other Party’s name to avoid taxes and penalties. 401(k) and other 401 accounts require specialized paperwork called a Qualified Domestic Relations Order (QDRO) to divide them and this means hiring a third party to prepare the QDRO—as most attorneys do not prepare them.

If a pension is being divided in the case, a QDRO or Domestic Relations Order (DRO) will be required. The QDRO or DRO will be filed with the Court and then sent to the pension administrator who will hold onto it until the pension starts paying out—so they will know how much and when to start payments to each Party. Even military retirements require specialized paperwork that designate the marital share and the factors by which the marital share is multiplied and divided. Some attorneys can provide this as part of the divorce, for others, a third party must prepare the military retired pay division order. 

Untangling Joint Debts:

Separating joint debts when they are on credit cards is difficult. The best way to do this is to first freeze the card so no further charges (other than the creditor’s finance charges) can be added. Then each Party transfers the amount they have been allotted to a new card. Once the joint card has a zero balance, it must be permanently closed. Parties often have to coordinate and cooperate to get this done. Problems arise when one Party does not pay or transfer their obligation. This leaves a joint debt unpaid that could harm the other’s credit score. That is why it is important to have this payment scheme spelled out as part of your divorce orders.

Working with your attorney during the divorce to separate the debts in ways that avoid each Party having to pay a portion of a joint debt, is the best way to avoid post-divorce debt wars. Sometimes, though, it is not possible to assign debts and ensure they get paid. Some people ignore Court Orders or actively seek to thwart court Orders. Joint debt remains a very real risk for many who are experiencing financial fallout from a divorce or have a less than trustworthy ex-spouse. 

(to be continued…..)