Navigating Your Finances Through Divorce

There’s really no way to sugarcoat it – though relationships are often filled with love and beauty, they can also be complicated and sometimes difficult to sustain over time.  

In recent years, January has earned the dubious honor of being nicknamed “Divorce Month,” as analysis of divorce filings between 2008 and 2011 revealed a spike in divorces in January through March.¹

Life changes like divorce or separation almost always call for major financial adjustments, which can often feel like insult to injury. But it doesn’t have to be that way – working with your financial advisor can help you work through the process professionally, and can also prevent emotion from sifting into financial decision-making. That’s key to eliminating some of the financial consequences of divorce.  

Four Financial Factors to Consider in Divorce

• Social Security Benefits – According to the Social Security Administration, if you are divorced but your marriage lasted 10 years or longer, you can receive benefits on your ex-spouse's record (even if they have remarried) if the following conditions are met: you’re unmarried, over the age of 62, your ex-spouse is entitled to Social Security retirement or disability benefits, and if the benefit you are entitled to receive based on your own work is less than the benefit you’d receive based on your ex-spouse's work. To note, your benefit as a divorced spouse is equal to one-half of your ex-spouse's full retirement amount (or disability benefit) if you start receiving benefits at full retirement age. If you remarry, you generally cannot collect benefits on your former spouse's record unless your later marriage ends (whether by death, divorce or annulment). If your ex-spouse has not applied for retirement benefits, but can qualify for them, you can receive benefits on their record if you have been divorced for at least two years.²

• New Tax Law Change – the recently signed “Tax Bill” institutes some changes to alimony payments and separate maintenance payments. Under the new law, these types of payments will not be deductible by the payor spouse and will not be included as income by the recipient. To note, however, is that this provision will only apply to divorces or legal separations executed after December 31, 2018, or ones that were executed before that date but modified after that date.³

• Retirement Accounts – generally speaking, retirement assets are fair game when it comes to divorces. A legal document known as a Qualified Domestic Relations Order (QDRO) can ensure your qualified plan funds (like 401(k)s) are distributed correctly. A QRDO is a legal document that determines in writing who has access to certain portions of retirement assets, and also determines how it is divided amongst a spouse, ex-spouse or dependent. Importantly, it ensures that no taxes or penalties will be applied when money is moved out of the plan early. Pensions and other employer-sponsored plans each require a separate QDRO. Individual retirement account funds require a transfer incident, which is also a tax-free movement of funds.⁴

• Setting Up a New Investment Plan – once assets have been divided and all legal actions have transpired, it makes sense to re-establish an investment plan to incorporate the new landscape of assets, liabilities, income, and goals. An investment plan is almost certain to look significantly different following a divorce or legal separation, but that does not mean your goals are unobtainable or not worth pursuing. It’s just that a new game plan will likely be needed.

WrapManager Can Help You Through This Process

An estimated 40% of first marriages end in divorce in the United States, and while the financial implications are long-lasting, and the Wealth Managers at WrapManager can help you reset and keep your investment plan moving forward. It will likely require many financial adjustments and changes to the way you save and invest, but partnering with WrapManager can provide support during the process. Reach out to us to get started at 1-800-541-7774 or start the conversation over email at wealth@wrapmanager.com. 

Sources:

1. CNN

2. SSA

3. Tax Bill

4. Fox Business