The Law of Division: Planning after Divorce — Accounts

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Roxanne Alexander, CAIA, CFP®, AIF®, ADPA® Financial Advisor

Divorce is an emotional time for everyone involved, but neglecting diligent follow-up can impact your finances. There are several areas that can easily be overlooked when you are constantly having disagreements, child custody battles, and alimony issues. Whichever spouse has been in charge of the finances, it is important for both spouses to become familiar with their planning.

Real Estate

The largest asset is usually the house. If the house needs to be sold, keep in mind there may be a large capital gain on the property that needs to be accounted for. Each individual is allowed to take a $250,000 home sale tax exclusion. The joint $500,000 (for married couples) home sale tax exclusion on the gain on the sale of the house may still apply even though you are going through a divorce.

Who is on the mortgage? Does one spouse need to come off the liability? This seems easier said than done, but most banks will require a new loan in the name of the party who gets the home. If the person granted the home in the divorce cannot qualify for a new loan, this can be a problem. Banks allow loan assumptions for several reasons, but the process is similar to obtaining new financing. Avoid removing your name from the title before the liability is released.

If you are not granted the house or other real property, but your name is still on these assets, you are still subject to liability if something happens. For example, if a natural disaster causes damage to your property, or a leak causes damage to the property of a neighbor, you can potentially get sued just as a result of being listed on the title. An umbrella insurance policy is fairly low cost and can help in these circumstances.

You are also still liable for any maintenance fees or assessments which are not paid along with property taxes if your name remains on the title. If your former spouse fails to pay these fees on time, this can negatively affect your credit.

Bank and Brokerage Accounts

“Removing” a joint owner on an account is easier said than done. After divorce you will need to open individual or trust accounts and close existing joint accounts. This requires ordering new checks and relinking direct deposits and EFT payments. If you have retirement accounts, the court may issue a QDRO which will allow splitting these assets and putting half in the other spouse’s name. It is important to check the beneficiaries on IRA accounts after divorce to make sure the beneficiary is not the former spouse (unless that is what you want). The beneficiaries on your company 401K can easily be overlooked since statements may be sent annually.

You should make sure any individual account has a transfer on death listed. This is the person the account will go to if you pass away and the account will avoid probate. If you have any joint credit cards, you may want to have them cancelled. If the joint account is linked to any other individual accounts you may have, you will probably want to unlink it.

Setting up a trust for minor children should also be discussed with your estate attorney.

Feel free to contact Roxanne Alexander with any questions by phone 305.448.8882 ext. 236 or email: RAlexander@ek-ff.com 

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