Tax Alpha: The Divorce Checklist
August 13, 2015 5:17 PM
14ktgold - Fotolia
You have heard the sad statistics: By one estimate, each year 3.4 percent of married Americans experience a divorce. Many if not most of them blunder into it without advance detailed consideration of how divorce will impact their finances. Even when couples anticipate an amicable break-up, the situation can deteriorate quickly, and one party to the divorce may wind up on the short end of the stick.
The professionals at HD Vest Financial Services offer the following list of steps you or your clients can take both before and after the divorce to ensure that the ultimate outcome is as equitable and manageable as possible:Visit our Tax Alpha section to see print-only versions of the
pathdoc - Fotolia
1. Before: Familiarize yourself with the applicable states divorce law
Different states have different approaches to property and liability ownership. Your clients attorneys are the professionals, of course, but its essential to know the basics, and better to have a deeper grasp.
Ochakovsky Vladimir (Waldemarus)/waldemarus - Fotolia
2. Before: Take an inventory of tangible and financial possessions
This will need to be done eventually anyway, but the sooner the better in case the process leads to any surprises, such as long-dormant retirement plan or taxable asset accounts.
pathdoc - Fotolia
3. Before: Secure the most recent statements
Youll want these for all accounts, and appraisals for tangible property with any potentially significant value. One less obvious benefit to the appraisals is to smooth out the process of dividing possessions with sentimental value to one party that might also be thought to have economic value, but actually do not.
Steven Frame/sframe - Fotolia
4. Before: Create new accounts.
You or your client will need to establish individual banking, investment, and credit card accounts in your clients name, to be ready for the separation of assets.
Minerva Studio - Fotolia
5. Before: Create a pre- and post-divorce budget.
Assuming the couple isnt operating under an up-to-date budget, creating a new, accurate one will establish the foundation for a prospective post-divorce budget that might include new expense categories, such as child care. Although the resulting picture might indicate that tightly restrained spending may be in your clients short-term future, the knowledge of what to expect and that it will be survivable can take some of the emotional strain out of the upcoming divorce process.
moshimochi - Fotolia
6. Before and after: Run a credit report
Beforehand, it will your client a heads up about any possible unknown debts their spouse has incurred without your clients knowledge.
Afterward, it lets the newly single zero-base their standing with prospective lenders. It often takes several weeks for the credit bureaus to bring the information they have on file up to date, however. If time is of the essence, it may be possible to accelerate the process by furnishing any information they would otherwise have to chase down.
iQoncept/iQoncept - Fotolia
7. After: Review beneficiaries
This step is critical. Many people list their spouse as their primary beneficiary, and this, of course, could cause problems once a divorce is finalized. Unless the divorce settlement specifies who the beneficiary of the accounts must be, people need to review and, if necessary, change the beneficiary on life insurance policies, retirement plans, IRAs, transfer on death accounts, annuities, and any other account with a listed beneficiary.
nito - Fotolia
8. After: Review wills and trusts
Once a divorce is finalized, unless something is specified in the divorce decree, most people want to remove their ex-spouse from all aspects of their wills and their trusts. A review of the trustees of an established trust should also be completed as it may be uncomfortable to have ex-in-laws listed in trusts, or as the listed care provider for any young children should the parent pass away.
Q - Fotolia
9. After: Establish a trust for young children
If the newly divorced person hasnt already established a trust for minor children, it might be appropriate for them to do so. The new trust should be named as the beneficiary to all financial accounts. Since minors cannot control their own assets, you should list a trustee that can manage their inherited funds until they come of age. If a trust is not created and a trustee is not listed, it is possible that an ex-spouse may be put in charge of your clients minors assets.
As life goes on
For more life-stage tips including advice setting up college savings plans, navigating the financial implications of divorce, managing retirement, and handling the financial affairs of a loved one who has died check out the Tax Alpha Tips of the Week on Tax Alpha. .Investments are subject to market risks including the potential loss of principal invested.HD Vest Financial Services® is the holding company for the group of companies providing financial services under the HD Vest name. Securities offered through HD Vest Investment ServicesSM, Member SIPC, Advisory services offered through HD Vest Advisory ServicesSM, 6333 N. State Highway 161, Fourth Floor, Irving, TX 75038, 972-870-6000.
