In a marriage, it’s not unusual for partners to have different tasks that they take on. Maybe one cooks and the other washes dishes or cares for the lawn while their partner does the laundry. In many cases, one person does the bulk of the financial business—pays the bills, balances the checkbook, manages retirement accounts and investments, and so forth.
When your marriage ends, if you were not the person who handled most financial matters, you may feel lost and overwhelmed by the prospect of managing it for yourself post-divorce—especially investments.
Divorce can leave you feeling insecure, personally and financially. And there’s no doubt that it can be a monetary setback and present real challenges. By some estimates, each ex-spouse needs to earn 30% more individually to maintain the same standard of living after divorce. And once your marital assets are divided, chances are you have about one-half the investment portfolio you did before the split.
On the other hand, this is an opportunity to gain control of your finances in your new life.
Here are some tips from the experts on managing investments as you enter your post-divorce life.
Don’t waste time feeling inadequate about what you don’t know.
Nobody’s born understanding how to invest—it’s a learned skill. But good planning is essential, so this is an ideal time to start working with a financial professional if you’re not already.
Take stock. If you weren’t the primary person handling financial matters in your marriage, you don’t know what you’ve got or how to access it. So first and foremost, get a clear picture and ensure you understand your situation.
- Make sure you know about all accounts and investments. How is each one set up (joint? separate?) Whose name is it in, and what contact information is on the account? Do you have every login and password?
- California is a community property state, which means that, in a straightforward divorce, all assets acquired during the marriage, including stocks and investments, are considered shared and will be distributed equally (divided 50/50). Assets acquired individually before the marriage are not considered community property, although they may be commingled (initially separate assets mixed in with the marital property). Exceptions are made for certain types of gifts and inheritances.
- If you and your spouse had a shared retirement account, pension, or 401k, these would typically be split. IRAs and savings accounts can be divided without a court order, but a 401K or pension will require a QDRO (Qualified Domestic Retirement Order) to make the transfer. This process can be rather complex, and it’s in your best interest to have it done by an attorney, as a mistake can have enormous financial consequences.
- Investments made after the date of separation are typically separate, providing separate funds were used. The date of separation depends on several factors, not just a move-out date. If the spouses disagree, the court will consider numerous points in establishing an official date, including physical separation, financial separation, and actions reflecting intent.
- Carefully weigh the tax implications and potential costs of selling assets (annuities/ retirement funds, for example, can incur steep penalties for early withdrawal. A QDRO can help you avoid these fees). Also, consider the timing: did you divorce during a market downturn? Now may not be the most suitable time to sell.
- Check your credit score.
- Again, hiring a financial advisor is wise to help you untangle these complex concerns.
Immediately cancel joint accounts and create new, independent ones.
Don’t leave yourself vulnerable to mistakes or poor financial judgment by your ex. Close joint bank accounts and shared credit cards and open your own so your ex-spouse is not impacted by overdrafts or bills run-up. Remove your ex as an authorized user. Choose new and secure passwords. Change automatic payments. Protect your credit by making sure loans and bills are paid.
Update your beneficiaries. From Insurance, retirement, and pensions to investments and bank accounts—if your ex was your primary beneficiary, you’ll most likely want to change it to your children or relatives.
Consider your new life carefully and the financial implications.
- What are your needs, expectations, and objectives for yourself and your family? Where do you want to live? What kind of standard of living do you wish to maintain?
- What do you want out of your investment portfolio? How comfortable are you with financial risk? Many people find that they require more certainty after a divorce, which impacts how they invest.
- Do you have an emergency reserve of six months of living expenses?
- Re-evaluate your retirement strategy based on being single.
When you’re going through a divorce and in the process of dividing property and planning your financial future, in addition to a qualified financial adviser, you need expert legal counsel. The divorce attorneys at Schoenberg Family Law Group, P.C., help clients establish priorities, choose their battles, and secure their fair share of the estate so they will emerge from the divorce in the most advantageous financial position.
By Debra Schoenberg