While many think of January as a fresh start, it's also earned another, less pleasant moniker: Divorce Month. Although a study from the University of Washington shows that divorces actually peak in March, they begin climbing as soon as the holiday season is over. It's this predictable spike in divorce filings that lead many to brand January as the top month for splitting up.
With tax season upon us and some people still struggling with the added expense of the holidays, sorting through the legal and financial implications of divorce can feel especially overwhelming. But it's not something you can ignore, either. In addition to following the advice of your lawyer, the three moves below could go a long way toward helping you prepare financially for life after divorce.
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1. Understand how your state divides property
States fall into two categories when it comes to dividing property in a divorce. Most abide by common law property rules. This says that property acquired by one person during the marriage is the property of that person alone, unless the spouse's name is on the title, deed, or account.
For example, if you purchase a car during your marriage and only your name is on the title, the car isn't considered marital property. But if you add your spouse's name to it, even if they never contributed a dime to the car's purchase, it's considered marital property.
Nine states -- Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin -- follow community property law. This means that anything acquired during the marriage belongs to both partners equally. Returning to our car example, even if only your name appears on the title, the car legally belongs to you and your spouse in a community property law state. But a car you purchased before your marriage would still be considered yours alone.
How your state handles marital assets doesn't just affect physical property, like homes and cars. It also determines how much of the money in your bank and retirement accounts you're able to hold onto. So becoming well-versed in what your state considers yours and what it considers marital property will help you know what to expect as you begin dividing assets.
It's worth noting that if you had a prenuptial or postnuptial agreement, your state's typical rules for property division may not apply. Consult with your divorce lawyer to get advice on your specific situation.
2. Get summary plan descriptions of all retirement accounts
In order to divide your retirement accounts appropriately, you'll need to know how much you and your partner already have saved and the rules of the accounts. Be prepared to furnish details about your retirement account balances to your lawyer and your spouse's lawyer. You should also obtain summary plan descriptions (SPDs) for all your and your spouse's retirement accounts from the plan administrators.
These documents outline the rules of the plan, including how the government taxes the money, the details of any employer match, and how to contact the plan administrator. This information is crucial for determining an equitable distribution of the retirement funds acquired during your marriage.
If necessary, your lawyer will help you legally transfer a portion of your retirement savings to your spouse. They can also help you prepare to receive any funds you're entitled to from your spouse's retirement accounts.
3. Create a new retirement plan
You also need to start thinking about how you'll save for retirement moving forward. You and your lawyer should be able to work out your approximate retirement account balance upon leaving the marriage. But you may not know how much you'll need to save to retire comfortably on your own.
Draw up a new retirement plan as soon as possible. Figure out how much you'll need to save monthly and where you'll keep that money. If you aren't able to save as much as you'd like to, you may have to rethink your timeline or come up with some other ways to generate income in retirement.
Don't forget to update your retirement account beneficiaries, as well. You probably don't want your ex-spouse to inherit these funds if you die, so appoint new heirs before you forget. If you have any questions, reach out to your account provider for details on how to update your beneficiaries.
Take it one day at a time
Every divorce looks a little different, but they're never easy. Take things one day at a time and rely upon your lawyer for advice if you have any questions about what will happen to your finances and retirement savings following the divorce.
Give yourself some time to adjust to your new life, too. If your new retirement savings strategy isn't working for you, feel free to change it until you find something that does.
