You've probably heard the quote: "The course of true love never did run smooth." William Shakespeare had it right on the money -- in any century, there are way too many things that can prevent a couple from reaching their happily ever after. As the young lover Lysander points out just a bit later in that scene, even if a pair does avoid the obstacles and comes together with the best of intentions, the affection may not last. Well, this week, Motley Fool Answers cohosts Alison Southwick and Robert Brokamp will tackle the labor of love lost in their series about major life events.
Guest expert Amanda Kish of Motley Fool Wealth Management brings her best advice on how to get through a divorce. In this segment, it's a discussion of post-split next steps -- specifically, what you'll need to do to separate your formerly joint financial lives. Unfortunately, if you're in this situation, you just got a long to-do list.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on June 11, 2019.
Alison Southwick: Let's move to your fourth point which is to have a divorce makeover. Get back out there! Hop on Tinder! Start swiping!
Amanda Kish: Not quite that fun, so it's not a fun, Queer Eye makeover, but a financial divorce makeover. When you're married, your financial life is obviously going to be very intertwined with that of your spouse, and that's going to vary from couple to couple, but, extracting yourself from that being intertwined does take some work. And I find there are some things that people tend to do up front to get to the D-Day logistical things you might have to do to finalize everything.
But then there's also other things that tend to fall by the wayside that can get pushed off. I'll deal with it later and you really need to take care of both sets of those items. So the things that you would do along the way. You're going to be opening bank accounts and investment accounts in your own name. You'll be keeping an eye on joint accounts. Maybe freezing joint accounts during the divorce process to make sure there are no mysterious withdrawals. Closing those joint accounts.
If you don't have credit established in your own name, you're going to want to do that as soon as possible. It makes sense to check in on your credit score, as well. Those are the kinds of things that people tend to do right away to get the divorce finalized. There are other things that are more important, I think, that people tend to let fall by the wayside, and they can range from very small things [for example, changing your passwords]. If you have online banking, once you have all of that separated into individual accounts, you're going to want to change that password. Even your Netflix password. That's something to consider as well.
Probably one of the most important things that you'll need to do is update your estate plan. Things like your will. Advanced medical directive. Power of attorney. If you've got your spouse listed on those documents, you're going to want to make updates. Changing beneficiaries on all of your investment accounts. Any bank accounts that have a transfer on death designation. 401(k). IRAs. Pensions and annuities. Even if you're not currently collecting them, they're most likely going to have your spouse as a beneficiary, so you're going to want to update that. Change that to a child or another family member.
Robert Brokamp: The same with life insurance policies and stuff like that.
Kish: That was going to be the next words out of my mouth was life insurance -- update those beneficiaries. So unless you don't care if your ex-spouse collects if you kick the bucket, definitely get that updated.
And consider the tax ramifications of your change in status. How you're filing taxes is going to change. Most likely you'll have been filing married, filing jointly, and that's going to change to most likely single or head of household. You may want to review the withholdings in your paycheck with your employer. You may need to file an updated W-4. And also be aware of how you're going to file your taxes. If you have custody of any children for more than half of the year, you could potentially file as head of household, and that's going to be more advantageous. It will be taxed at a little bit lower rate, higher standard deduction.
I know of one individual who divorced, had custody of his children about 75%-80% of the time. He worked in finance, so he had always done his family's taxes. Continued to do them filing single after the divorce. Eventually after a couple of years decided to offload that to an accountant and the accountant said, "Hey, you could have been filing as head of household this whole time and saving a significant amount on taxes." So make sure that you have the correct filing status for your updated situation.
Southwick: And when should you get professional help?
Kish: That depends. It's probably never too soon to do that. Kind of it is part of the issue of your divorce makeover. Don't be afraid to loop in financial professionals. You may already have a lawyer that you're working with. Don't be afraid to include an accountant or a financial planner to take a bigger, more comprehensive look at your overall financial picture and importantly, how that's going to change.
And there are actually planners out there that have certified divorce financial analyst status. Those are not letters that I have after my name, but those are individuals that are specifically trained in financial matters relating to divorce, so it may make sense to seek out someone with that designation if you have that need.
Brokamp: Divorce changes last names. If you had a financial plan while you were married that was based on all kinds of things like your living expenses, how much you had in your 401(k), how much you're going to get from Social Security; then you could divorce and it's all different.
Your living expenses have changed, retirement assets have probably been split. Social Security -- you can get it based on your record or your spouse's record if you've been married for 10 years, so if you haven't been, that changes things, too; and if you were going to get a benefit based on your spouse's record, but then you get remarried, that could change things, too. I think seeing a financial professional who knows all the ins and outs of that stuff is very helpful.