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Rebuilding Finances after Divorce
Divorce in itself is difficult to navigate, but after all is said and done, there are still some things to be considered regarding finances.
It is easy to think that if you do not have many assets to divide it is not necessary to have to rebuild and reconfigure financial vehicles. Estate planning that includes wills, living wills, life insurance, healthcare, and retirement accounts apply to people of all levels of financial standing. Specific financial issues such as mortgages, credit card debt, and car notes could still be a problem unless they are handled by a competent divorce lawyer.
Children– Divorce raises the issue of who will be claiming the child/children as dependents on a tax return. Typically, the parent that provides more than 50% of their care claims the child as a dependent. Another consideration that may need to be addressed is the funding of college for the child. Since situations may change drastically, such as a spouse remarrying, it may be wise to agree that both spouses contribute to a financial vehicle such as a 529 account.
Retirement Plans– If both spouses work they may both have their own retirement accounts. The current beneficiary on the retirement accounts may need to be changed after divorce. Many couples may have planned to use the highest earners plan which seeks to divide retirement accounts equitably. This is normally done with a legal document called a QDRO, or a qualified domestic retirement order. Not all retirement plans allow for this document to be enforced so it is necessary to find out ahead of time.
Life Insurance Policies– Some divorce agreements include these policies. It is best to make sure that you are both the owner of the policy as well as the beneficiary.
A New Estate Plan– It is important after divorce to set up new documents, such as a will or revocable trust, and a living will with a new designee. This person could also be your healthcare power of attorney. In the event something happens to you, the courts will have the power regarding guardianship of the children. Should that be contested, your written wishes are taken into consideration.