Divorce can be a difficult life transition, but as with any challenge, it offers the opportunity for growth if you approach it with a plan. Check out this video on Financial Tips for Divorce.
Protect yourself legally
Consider going to your installation’s legal office. No-cost services may include mediation, separate legal assistance for the Service member and spouse, legal advice, and notary services. Learn more about U.S. Armed Forces Legal Assistance.
Protect yourself emotionally
Navigating the divorce process can be an emotional roller coaster. Get professional help to talk through it all at no cost – call Military OneSource at 800-342-9647 to learn more about non-medical counseling for you and other members of your family.
Protect yourself financially
Divorce has short- and long-term financial implications, from attorney fees and litigation costs to new housing arrangements and retirement considerations. Take a tally ASAP of what might impact you financially so you can prepare for changes.
Understand the Uniformed Services Former Spouse Protection Act (USFSPA)
This federal law provides certain benefits to former spouses of military members. Through it, former spouses may be entitled to portions of the military member’s retirement pay, as well as medical care and exchange and commissary benefits. Get to know the specific rules from the Defense Finance and Accounting Service to help inform your future financial plans – there are considerations for moving expenses, health care coverage, child support, and more.
Plan Your Future Finances Carefully
As you start planning your financial future, hit these checkpoints and review our learning guides to make sure nothing falls off your radar.
Taking inventory of the information listed below can provide useful insight as you navigate the terms of your divorce.
- Bank accounts
- Retirement plans
- Property (the fair market value of your home, vehicle, furniture, household goods, collectibles, electronics, etc.)
- Other assets (airline miles, stock options, etc.)
- Vehicle loans
- Credit cards
- Other loans/ debts
- Life insurance policy information (coverage, type, beneficiaries, owner)
- Property insurance policy information (homeowners, renters, car, etc.)
- Health insurance (TRICARE, dental, other health coverage)
- Monthly payments (rent, utilities, insurance, loans, child care, etc.)
Assets like a house and car hold value, but they aren’t as liquid as money in the bank or investment accounts. They also require cash flow for ongoing payments and repairs. Consider liquidity and cash flow requirements when you evaluate your property and accounts.
Part of either spouse’s retirement account may be awarded to a future ex-spouse. Remember that Roth retirement assets may be more desirable than their traditional counterparts because the taxes have already been paid.
As you plan for your future tax situation remember:
- Child support is not tax-deductible for the payer and is not taxable for the payee.
- Custodial parents can claim a qualifying child as a dependent on their tax return unless an exception has been declared in writing for the non-custodial parent (IRS).
- Certain alimony or separate maintenance payments are deductible by the payer and taxable for the payee.
If you refinance a loan to remove the other party from the debt obligation, it might increase the interest rate of the loan. Your debt-to-income ratio, credit score, and the fair market value of the asset can all affect the terms you’re offered. Identify factors that could make refinancing difficult, like negative equity in a vehicle.
If you have joint debts, take steps to protect your credit. Create an amicable payment solution and stick to it. Check the payments status regularly to make sure your ex is holding up their end of the deal.
Some states may require a person paying spousal or child support obligations to have life insurance. Private life insurance policies have many components, including the owner, insured, payer and beneficiary. The owner of a life insurance policy can make changes to the policy, so it’s often a good idea for the spouse receiving support to maintain ownership of a policy. That way, they can make sure it’s paid on time and that the proper beneficiary is maintained.
Start the Next Chapter of Your Financial Future
Financial priorities and plans you made as a couple should be reconsidered as you move ahead. Here are some suggestions to get you started.
Your income and expenses are poised to change, so your spending plan will need to a revision, too.
Per your divorce decree, or as appropriate, you should consider closing joint banking and credit accounts. Establish new ones in YOUR name only.
Think about changing usernames and passwords, and consider setting up automatic payments for your bills. It’s a simple way to protect yourself from the fees and credit score dings associated with late payments.
Experts recommend saving up an emergency fund of at least $1,000 to serve as a financial cushion for life’s many surprising expenses. Learn more about why, how and how much in the Saving for Emergencies Learning Guide.
You should always monitor your credit, and you should especially do so after divorce. You can request a free copy of your credit report from each of the three major credit bureaus at annualcreditreport.com. Check every month or so to make sure there’s no unauthorized activity, like new accounts opened in your name.
The report will show all the current credit in your name, plus your credit history. Read your divorce decree to confirm who is responsible for paying joint loans, and make sure updates accurately reflect the decree and payments are being made on time.
If you and your previous partner own a home together, your divorce decree may convert the ownership from both of you to only one of you.
A quit claim deed can accomplish this. The deed must be filed with the county recorder where the property is located. You might also be required to refinance your mortgage or work out a mortgage assumption.
If you own vehicles, boats, and/or recreational vehicles together, they could require a title change too. The process and requirements will vary by state – your legal counsel can advise.
As you separate your insurance plans, it’s a good time to consider the coverages, premiums, deductibles, and beneficiaries for each of your policies. Your circumstances have likely changed, so your coverages might need to shift too. Your divorce decree may also require certain coverage so be sure to incorporate that into your review.
For health insurance, former military spouse health benefits end on the day of your divorce unless you meet certain criteria within this list. Arrange for a replacement plan as needed to avoid a gap in coverage.
Your circumstances have changed, but the distribution of your wealth and the authority to implement your medical wishes will not change unless you update the documents that make up your estate plan:
- Power of attorney (POA)
- Medical POA
- Living will or medical directive
- Trust (if applicable)
- Family care plan
Also review and update the beneficiaries on accounts and insurance policies. If you have minor children, make sure they’re provided for in your estate plan. Also name a legal guardian.
Generally, your ex-spouse would be named if they are the parent. If this isn’t the case, or if something should happen your ex-spouse as well, it is important to name a guardian for any minor children. Your divorce decree may provide specific guidance on this, so update your documents accordingly.
If you’ll be changing your name, get several copies of the divorce decree or court change of name document so you can update all the accounts and legal documents that will demand documentation, including your:
- Social Security card – Request a new Social Security card from the Social Security Administration.
- Driver’s license – Update your driver’s license at your state’s Department of Motor Vehicles.
- Passport – Request a name change for your passport through the State Department.
If you’re going to split money in an Individual Retirement Account, Thrift Savings Plan account, or other employer-sponsored retirement plan, be aware that these situations generally require a qualified domestic relations order (QDRO), which should be part of the divorce settlement.
Review your retirement situation. If you regularly contribute to a retirement account that has been partially depleted due to your divorce, you might want to increase the amount of money you set aside so you can replenish what you have lost.
If you’re unable to increase contributions, or contribute at all, you can still plan for how you’ll contribute when your situation improves.
Insure Against the Unexpected
Learn more about the different types of insurance and ways you can customize your policies, so you stay protected without paying for coverage you don’t need.
Leave a Legacy on Your Terms
Estate planning gives you control over medical and financial decisions made on your behalf. It also gives the people implementing the plan peace of mind. Do your future self – and your family – a favor: Set up a basic estate plan today.