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What to do When Going your Separate Ways Part 2
By Karen A. Miller, CFP®, CPFA
In the first installment of “What to do when going your separate ways,” we discussed the things that you should do right away. In this installment, we’ll discuss some of the longer-term changes you may need to make as well as a few common mistakes to try to avoid.
Getting it right the first time
Divorce can be complicated, and it can take time to sort things out—especially if you have children. Here are some things that are worth spending the time on:
- If you have kids, determining who is responsible for what
- For example, it is critical to understand—and have a written agreement about—who will be paying for what and for how long (child support and college, for example). Sadly, you cannot simply trust that your ex, no matter how earnest they are, will take care of your children as they intend to now, as a new spouse or children can change your ex’s priorities.
- Change the beneficiaries on your retirement and other accounts—your spouse is likely the default beneficiary on your retirement account, so it is important to change this to your children, other loved one, or a guardian you name.
- Revise your estate plan and your will to represent your new status, assets and wishes. And if you have custody of your minor children, you may also want to consider:
- Designating a guardian in case something were to happen to you.
- Putting your assets in a living trust. This enables you to retain control over them, while protecting those you love. After your death, funds will be distributed according to directions in the trust's document, which is important because even a guardian you designate may not make decisions as you would like. Depending upon the trust's terms, assets can also be protected from your former spouse, creditors and even spendthrift children.
- Buying a new life insurance policy on your ex. Remember, if they remarry, it’s likely that the new spouse will become the beneficiary of an existing policy, making it wise for you to own a policy outright.
Avoiding common mistakes
There is no way to be perfect at anything. And this is especially true when it comes to divorce. That being said, there are some common mistakes you should try to avoid.
- Try not to overestimate your retirement assets—many people forget that they will need to pay taxes on these assets when they access them
- Avoid overemphasizing longevity and amount of alimony you may be receiving—remember that if your ex passes away or you remarry, this income would need to be replaced
- Remember that you may be entitled to spousal Social Security benefits—if you were married for at least 10 years and you do not remarry, you are eligible to collect spousal benefits if they are larger than your own benefit
Divorce and estate planning attorneys can provide more comprehensive legal information and Gasber Financial can help you with your financial, retirement and other plans.