Taking Care of Business After Divorce

By Nina Dodge Abrams
Abrams Yu and Associates, P.C.

After the Judgment of Divorce is signed by the judge, someone needs to make sure the loose ends are tied up.  Just being divorced through the court does not mean the newly single person is fully separated from his or her ex-spouse.  There are many personal and business matters to wind up.

I. Family financial documents.

It is important for the person to make sure the family financial documents are exchanged.  Both parties need the legal and financial papers that are accumulated during the marriage.  Many of these documents were exchanged during the discovery phase of the divorce.  Nevertheless, after the divorce is completed, the newly single person needs to review the documents for completeness.  Exactly which documents are needed depends on the settlement, the party’s age, the real estate exchanged, and/or the custody of the children. 

Everyone needs copies of the last 6 years of income tax returns, bank or investment account statements, life insurance policies, health insurance policies, automobile insurance policies, the last year’s paycheck stubs, deeds or abstracts to real property awarded to the party, investments, stock certificates, mortgages, IRA documents, and other retirement account statements. There may also be documents of inheritances, photographs, real estate appraisals, homeowner policies, property tax bills, business ownership documents, and credit card and store account statements.  What is classified as family financial papers is specific to each family.
 
In starting a new life, having the above documents makes it easier to purchase a new home, look for different health insurance, pay bills, evaluate one’s financial position, or file income taxes.  Very few are able to start absolutely fresh without some historical reference within the first year after a divorce.

II. Clean up tasks.

Another must-do task is that someone, preferably the party along with his or her attorney, needs to go through the Judgment or Settlement Agreement to make a list of tasks each party has obligated herself or himself to do upon completion of the divorce.  A checklist of tasks to perform is different for each person.  The list may include:

a. Draft an order of income withholding to assure child support and spousal support payments from one party to another;

b. Exchange quit claim deeds to transfer titles in real estate;

c. Refinance the home to take one person’s name off the mortgage and perhaps to raise money to buy out that person’s equity;

d. Split or separate bank or investment accounts;

e. Rearrange family debt so that each person pays his or her share;

f. Change the beneficiaries’ names on life insurance;

g. Purchase health insurance or secure COBRA continuation health insurance;

h. Set up spousal support payments;

i. Arrange life insurance to serve as security for child support or spousal support payments;

j. Change the name on the utilities, car insurance, homeowner’s insurance, or any of the many bills each person incurs in activities of daily life; and

k. Agree on dates that one party leaves the family home and when the personal property is divided.

III. Retirement accounts.

In addition to the mundane but very important tasks above which need to be undertaken, the client must make sure his or her attorney follows up with collateral orders that transfer retirement accounts.  The exchange of retirement accounts is highly technical.  Each retirement account plan and the rules for the exchange differ  from one another.  Most of this will have been discussed during the divorce settlement process; nevertheless, most of the preparation of the actual exchange documents comes after the judgment is entered.  IRA’s are transferred with a paragraph in the judgment and signing many papers from the financial institutions.  401(k) plans, 403b plans, profit savings plans, pension plans, or other deferred income plans need a paragraph in the judgment and a stand-alone order meeting certain federal or state requirements.  These documents are sent to the Plan Administrator for its approval.  Once approved, then there are the Plan Administrator’s forms to be filled out and returned to the Plan before the retirement account can be transferred.  It is easy to fail to keep track of the retirement account transfers because the paperwork usually takes several months. 

Once the paperwork is completed and the transfers made, the client must still keep track of this asset to inform the Plan Administrator of changes of address, changes of names, or a desire to begin retirement fund withdrawal.  Company names seem to change as frequently as people.  Without keeping track of these retirement assets on a regular basis, the asset may seem to disappear.
 

IV. Children’s tasks.

Another major set of tasks to perform is related to the children.  As far as health insurance is concerned, do both parents have employer-provided insurance, or only one? Is there another source of insurance for the children, and does each parent know the total coverage available?  When an emergency occurs, it is too late to look up the benefits.  Also, does a qualified medical child support order need to be in place to make sure that the party paying the co-pays, pharmacy bills, and deductibles is reimbursed by the insurance company, as opposed to the employee parent?  Does one party need to sign IRS dependency exemption Form 8332 for the dependency exemption in any one year?  The parties must determine who is on the emergency cards at school, who receives the school-related information, and who chooses the day care providers.  Without planning, these topics become a source of conflict for the parents.

V. Future personal plans.
 
There needs to be a future plan, both personally and financially.  On the personal scene, separating is highly stressful.  It takes months, if not years, to get over a former marital relationship.  A person needs to take time to adjust.  Starting a new relationship prior to divorce or just after divorce is handicapping the opportunity to get rid of old emotional baggage.  Counseling is usually a good idea to scrub out demeaning or unpleasant messages that are stuck inside one’s head. There are many divorce recovery groups to help one get past the old relationship and to learn independence.

Finishing a divorce and moving out on your own or with the children is a major life transition.  Adding to the stress is taking care of details such as those listed above.  If one feels overly anxious or is unable to handle the situation, it is important to find some help.  The attorney very likely will understand the situation and will have a list of people or agencies that provide help from therapists to financial counselors.

VI. Future financial plans.

Most people starting out independent again are doing so poorer and with a lower standard of living than was available during the marriage.  With the tightened job market, more people are looking for jobs.  Even when holding a good job, the newly single person feels insecure because he or she is no longer part of a team.  The safety net is gone.  In contrast, some people feel better because the person who drained the family finances is no longer tied to him or her.  But few come out of a divorce wealthier and with access to more money or credit to support him or her. 

One has to make a financial plan for the immediate future and for the intermediate future.  Awareness of the financial possibilities and pitfalls are necessary to move forward and away from the past relationship.  There are responsible financial counselors who will help plan for the future.  The first task is to reduce debt and to structure a lifestyle with as little debt as possible.   Managing debt provides a sense of security.  Along with debt management, one has to consider a budget and the cost of day-to-day living.
 
Next, one has to look at sources of income.  The marital home or the retirement accounts are usually the source of each person’s individual wealth in a divorce.  Neither provides income for day-to-day living in the immediate future. Methods to increase income must be explored.  In this day and age, receiving spousal support and child support is usually not enough money.  Most people have employment income, some people have investment income and inheritances, and a few rely on government entitlement programs.  The financial lifestyle is based on evaluating financial expectations.  Without planning, the newly divorced person will be adding financial stress as well as experiencing the personal stress of ending a relationship.

The lucky person who has investments in addition to employment has the opportunity to plan for a safer financial future.  When one is single, the need to save is critical because there is no one to bail him or her out when there is an emergency such as a job  loss or major sickness.

VII. Women’s problems.

Fair or not, women need to do more financial planning than men.  They are paid less as a group, they have less time to acquire retirement accounts, and usually they take time off to raise a family, thus losing years of employment and benefits.  Women are most hurt by corporate downsizing. Only about one women in five over the age of 65 receives a pension.  See Smart Women Finish Rich by David Bach, Second Edition, Broadway Books, New York, 1999.  Also, women are less often the financial managers and have less experience planning for a financial future.  Thus, many women have to work harder to learn the skills to be independent and work harder to save in order to have financial security.

VIII. Important places.

Some places the newly-divorced person must know and use are listed below.

a. The Secretary of State’s office is where car titles are changed and names are changed on driver licenses.  Identification is needed as well as a paragraph in the judgment or a separate order restoring the name of a woman to a former name. See http://www.michigan.gov/sos

b. Insurance companies or employer human relations offices are the places to change or correct life insurance beneficiaries.  Even if a Judgment of Divorce awards the insurance to one party or another, the beneficiaries on the life insurance may remain the same unless the owner, the former divorce client, proactively changes the beneficiaries.

c. Insurance companies or employer human relations offices are the place for the spouse whose child support or spousal support is to be secured by a life insurance policy.  It is important for the person being protected to know this office so that one can verify the proper policy is in force.

d. Estate attorneys are needed to update and revise wills and estate plans.  After a divorce, a new estate plan is needed to provide for children or to just be tidy about where you leave your things.  More importantly, one should have provisions for a possible disability and a medical durable power of attorney.

e. Banks and other financial institution are places for information about financial planning and the place to start or continue saving.

f. Credit card companies and credit rating agencies provide the opportunity to clean up any poor credit history and to keep track of future credit.   Getting a regular credit report and jealously guarding your credit worthiness is critical to being ready to purchase a home or make a large purchase.  See http://www.creditreport.com. 

g. The IRS office is the place to file income tax returns.  Also, the place to get forms and instructions as well as to communicate about any tax problems. See http://www.irs.gov.

IX. Surviving divorce is possible.
 
Surviving a divorce is more than getting a court order saying you are no longer married.  To become a secure independent person, one has to do short-term and intermediate-term personal and financial planning.  There are many agencies to help reach a person’s individual goals.  Even a newly divorced person is not alone.  So if a person is confused about where to go, his or her attorney usually can provide valuable information.  Removing a sense of dependency is truly a major life success.