S2E9: Post-Divorce "Mini Bite" Part 3-Things to Do LATER

The divorce is final; yet the items on your to-do list are overwhelming enough to make you want to crawl under the covers. For most people, the day after the divorce is just the beginning of the transition process, not the end. The key to maintaining sanity during this overwhelming time is breaking up your financial "To-do" list into manageable “bites”. In this, our first 3 part Mini-Bite Series, Jacki and Melissa break down your post-divorce game plan into things that you should do "NOW", "SOON" and "LATER". Each segment has its own mini episode. 
 
 Part Three shares “bites” to do within the first year after your divorce is final. “Bites” include changing your name, estate planning, making QDRO distribution choices and pushing re-set on your financial plan.

·        To read about how Pearl Planning and Jacki Roessler, CDFA can help you though and after your divorce or schedule an initial complimentary consult,  CLICK HERE

·         CLICK HERE FOR MORE INFO ON SOCIAL SECURITY NAME CHANGES  

·         CLICK HERE FOR INFORMATION ON PASSPORT NAME CHANGES 

·        To learn more from Jacki about why timing is so important with QDROs, CLICK HERE TO LISTEN NOW 

 Links are being provided for information purposes only. We do not suggest that listening to this podcast will make you wealthy. Pearl Planning is not affiliated with and does not endorse the opinions or services of Brian Cohen or his affiliates. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Pearl Planning cannot guarantee that the information herein is accurate, complete, or timely. Pearl Planning makes no warranties with regard to such information or results obtained by its use and disclaims any liability arising out of your use of, or any tax or legal position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Pearl Planning financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.

Chapters

• 0:10 Post-Divorce Checklist
• 11:53 Options and Consequences of IRA Distributions

Transcript

Speaker 1: 0:10

Welcome to the Wealthy After Divorce podcast. Jackie Ressler, a divorce financial planner with almost 25 years experience, and myself, melissa Freidenberg, financial advisor with Pearl Planning. We are both certified divorce financial analysts and your co-hosts.

Speaker 2: 0:29

If you're thinking about divorce or in the process of divorce, this is a time for you to take a deep breath and give yourself permission to gain clarity on the financial decision they're facing, while the term wealth typically refers to money and possessions.

Speaker 1: 0:45

We know that truly being wealthy means a whole lot more Together with our guests on this podcast. We will help you live wealthy after divorce.

Speaker 2: 1:02

Hi everyone and welcome back to Wealthy After Divorce. I am really excited today because today I am going to share with you part three of our mini-bite series on your post-divorce checklist. So these mini-bite series. We're going to be doing a few more of these, I think, throughout the year, because we've gotten a lot of positive feedback on it, which makes complete sense to me.

Speaker 2: 1:26

When the divorce is done, or even during the divorce, there are so many different things that you have to do that sometimes it's hard to prioritize and figure out what are those things that need to be done right away and what are those things that need to be done a little bit later. Anyone can handle the post divorce list of things to do when you break it down into little bites. So today I'm going to be finishing up with part three. So far we've done part one of the mini-bite, which included things that we recommend that you do immediately after your divorce, so the things that you want to run, not walk, to get finished, and I'm going to share a link to that in the show notes. The second part of our series covered things that you want to do soon, so things within one to say, to six months post-divorce. So you don't need to race out of the courtroom and get them done. But there are things that are pretty important that you get a jumpstart on, so we covered that in our part two, which I'm also going to link Part three today. I am going to be covering with you that the financial planning things that should be done within one year, or one year plus post-divorce. So again, I'm really excited to finish up these items and I hope that you find them valuable.

Speaker 2: 2:48

So the first thing I'm going to talk about is name changes. Not everybody changes their name after their divorce. For many of my clients, what I have found is that they may want to change their name and they may have the legal documents to change their name, but they haven't officially changed it yet their driver's license or any of their bank accounts or their bills and it can be a little bit of an overwhelming task. The first step that you need to take care of if you want, if you're going to be changing your name, is you need to go through social security, and social security that is the thing that you need to get done first before you can change your name with a secretary of state or do any of that additional leg work. The simplest way to accomplish that is to go in person with the required documents. I'm going to provide a link in the show notes to click that link for the list of documents you need to bring. If you prefer to correct your name online, you can also complete an application online, which I'm also going to link in the show notes, and you're going to need to submit a copy of all of those documents with an original court seal copy of your judgment of divorce. Social security will generally send that back to you. And again, if you go back to minibike number one when I suggested that you get several copies of these with the seal on it of your judgment of divorce, that would be helpful. But don't worry, if you didn't get that at the time, you can always contact your attorney's office to find out how you can get a seal copy, or you can contact the court directly. So after going to Social Security and you get that taken care of, then you can visit the Secretary of State to change your name on your driver's license. You want to schedule an appointment at your local Secretary of State office and you also might want to change your passport if you're changing your name. If you are changing your passport, you might be eligible to complete a form online and submit your documents, and you might not be. Again, I am going to share the link in the show notes for you to go in and check to see if you can complete and submit those forms online.

Speaker 2: 5:03

The next item that I wanted to cover is about estate planning. So I think we touched a little bit on this in the previous minibike episodes, but if you haven't taken care of this already and it is one of those things that a lot of people do wait a little bit of time to do I highly recommend that you make an appointment and go in to talk to a qualified estate planning attorney. You want to make sure that you create a new will and a trust. In fact, I always recommend to clients as part of good, sound financial planning, that the goal of the state planning is to try to keep you out of probate. So nobody wants to go through probate with their assets when, upon a family member's death and probate, anything that's in your will is going to go through probate. So it would be much better for you to either use beneficiary designations on your retirement accounts those avoid probate, and also titling your asset in the name of a trust that you created yourself that has your wishes on how you want your assets to be portioned out amongst your heirs, and this is really important to do after a divorce and again, it is something that can get overlooked for years.

Speaker 2: 6:26

You also want to make sure that, when you meet with that attorney, that you designate a health care power of attorney and a financial power of attorney Again really important. While you're married, it's assumed that your spouse is your health care power of attorney and your financial power of attorney. However, once you're divorced, you need to name someone, or else who knows who that's going to fall to. So, if you can't make health care decisions for yourself, think about who you would want to designate. Same thing with your financial decisions. Who would you want to be in charge of your finances? And it doesn't necessarily have to be a family member. When you want to name someone, to designate someone to be in charge of your finances. It could be an attorney that's a trustee. Might not be the most convenient or the least expensive, but there are all different kinds of options Critically important.

Speaker 2: 7:20

After you revise your estate plan, make sure you retitle your assets into the name of your new trust. I had a client, within the last few years actually, that had a very large estate and they had taken the time and spent the money to get estate planning done with a great lawyer. They had a revocable living trust drawn up and when they came to us for the divorce, nothing was in the name of the trust. So all of their assets they had brokerage account assets they were all in either joint name, joint title or one or the other party's title None of it. So what that means is that your trust isn't activated. So in order to have your trust actually work, you have to retitle all of your assets into the name of your trust. If you're working with a financial advisor, they should be able to help you with that, with completing the paperwork. It can be a little bit of a pain in the neck. You're gonna have to supply several copies of the name of your trust when you're getting that taken care of, but it's something that, now that you're at least one year post-divorce, you really need to move that up on your priority list.

Speaker 2: 8:34

It's also really important that you think about what's going to happen with your minor children if something were to happen to you Now if you have joint legal custody with your ex-spouse, obviously, if something happens to you, the children will go into the custody of their other parent and you really aren't gonna be able to do much about that and that lawyer can't give you legal advice. So I'm gonna direct you to a lawyer on that question. But what I do know is that, when it comes to the financial issues, you can designate who is going to be separately in charge of your finances, of the finances for your children. So somebody else is writing out the checks and your trust documents can specify what the money should be used for. You don't want all of the money that you leave to your children going to your former spouse necessarily to just use at his or her discretion.

Speaker 2: 9:31

So, again, these are really important decisions to make and they need to be done. Again, it's not something that you should run out of the courtroom and do, but it is something that I believe needs to be addressed, certainly within the first year of your divorce being final. Our next little byte involves quadros. Quadros, again, that is short. Qdro is short for Qualified Domestic Relations Order, and that's the legal document that's used to transfer qualified or employer-sponsored retirement plans from one spouse to the other when you get divorced. So this part's gonna be a little bit technical, but what you need to know I am going to share with you.

Speaker 2: 10:21

I'm going to assume that since your one year post-divorce, that you've already had your quadro drafted and that you've already had the quadro approved and you got a letter from the plan administrator that says let us know how you want the money. And you have to fill out a form. That looks a little bit scary. So I'm going to explain to you what the options are using an example. Let's say that my client got $50,000 from her husband's 401k. So she has the option. The quadro was approved. She's excited because of the long process. It finally got approved and then she's got this piece of paper that says how do you want the money? So she has three options. The first option is the simplest she doesn't need the money now. She rolls it over into an IRA account in her own name or her own qualified plan, if her employer allows that, and that is a non-taxable event, and she's got additional money that's going to be growing for retirement. The second option is you actually have a one-time window of opportunity to take money from this quadro distribution and avoid the 10% penalty that you normally pay if you take money out of her retirement account before age 59 and a half. So that's based on the technical term of the technical source is IRS Regulation 72T2C. Now you don't need to know that. All you need to know is that you have this one-time window.

Speaker 2: 11:53

So let's say that my client says well, I could use about $10,000 in cash. So what she's going to do is she is going to have the plan roll over the plan and consider roll over into her IRA $40,000, and then she's going to take a $10,000 distribution. Now when she gets the money, that distribution is going to be taxable income and the plan administrator is required to withhold a minimum of 20% and send it right away to the IRS. So she's not going to be getting $10,000. She's going to be getting $8,000. Now it does avoid that 10% penalty, but she's still going to pay ordinary income taxes on it. So she needs to get in touch with the CPA or her financial advisor or an accountant to help her when she looks at that distribution paperwork to determine what her estimated tax liability might be. Now, the part that was rolled over to her IRA non-taxable. The third option is that she takes a full distribution of the entire amount, which means the entire amount is going to be treated as taxable income to her at her highest marginal tax bracket, but again the 10% penalty is avoided. So she fills out the paperwork and then, as soon as she mails it in, let's say, a few months go by and she says you know, I could use $10,000 after all. So she calls up the IRA custodian and she says I want a distribution. Now she's going to get hit with that 10% penalty for early withdrawal and ordinary income tax. So the important thing to know here is make sure that you get some input with this and that you understand all the options and the consequences. You don't want to take out more than you need in cash, but you also don't want to find figure out that you need more money after you've already rolled it over into an IRA.

Speaker 2: 13:49

It's been a year or more, which is okay. After your divorce, now is a really good time to sit down and get a handle on your new financial plan for your new financial life. It's been a year, so you've had enough time to see what your income and expenses look like, to really get a handle on your cash flow and to start to think about what your financial goals are. Do you wanna retire at a certain date? Do you want to? For a lot of my clients, they've been renting for the first year? What kind of a house or a condo do you wanna buy? All of those kinds of big transitional decisions. Now is a good time to start thinking about them, now that you're one year into it. It takes a long time to really feel like you're ready to make all of these big financial decisions, even after a year. Some people aren't ready to make some of these decisions for two, three years, close divorce or more, and that's okay too. You need to do it on your own time. But after the divorce is done, as soon as you feel ready, it's a good time to get your financial advisor involved to sit down with you and figure out what are my new financial goals, what do I want to have happen and how am I gonna get there? That's really important for you to do as women.

Speaker 2: 15:08

Again, I know that our audience is women and men, but I will say for the women that are listening to this as women, we tend to not think about our long-term finances. We are really good at focusing on paying the bills and taking care of our kids and saving for college expenses for the kids. We're not so good at thinking about our long-term finances for retirement planning purposes and thinking about what our goals are. If you have a goal, say that you want to travel and you wanna go on a special trip. It's much easier if you have that goal on paper. You can see what's it gonna take for me to get there. Am I gonna have to sacrifice some things? Am I gonna be okay with doing that? How much can I spend when I go? It's sort of like if you were to go to a new location and you picked up a map and you map out where you're heading to and then you can plan out your route to get there, versus just hopping in the car and hoping that you get to the place that you wanna arrive at. We again, as women, tend to not prioritize our financial goals and our financial future, and now is the right time to do that.

Speaker 2: 16:28

But I hope you've enjoyed part three of our Minibike series. If you haven't listened to the other ones and you are at the right timing in your post-deborts process, I encourage you to listen to those and please share with anyone that you think may benefit. We really appreciate any of our listeners who are on Apple downloading us that you can force, follow, subscribe and give us a review. A review really helps us reach more people, that we can get this information that we think is so important out to. Thank you for joining us and stay tuned for our next episode, where we have something really exciting. Actually, I don't wanna give it away. So stay tuned for our next regular episode, which we'll be posting in two weeks, on Thursday.

Speaker 1: 17:23

Thank you for listening to the Wealthy After Divorce podcast as well as on our podcast website, wwwwealthyafterdivorcecom.