Post-Divorce Financial Mistakes: Changing Beneficiaries (Special Guest Blog)
Divorce can be a very difficult experience. Most of our clients want to move on with their lives as quickly as possible after they complete the financial negotiations of their divorce. Part of moving on includes taking control of their own finances. There is a long list of things to do in order to take control of post-divorce finances but our experience shows us the number one most overlooked area is changing beneficiaries. This becomes a “to do” item that over time never gets done. And believe it or not, most advisors don’t confirm or review their clients’ beneficiaries for accuracy. We regularly work with our clients to make sure their beneficiaries are up to date.
While married, most people want their spouse to inherit the funds in their retirement accounts and life insurance. After divorce, however, that can change. Quite often people want to name their children or siblings as beneficiaries. While this is easy to do for life insurance, it becomes a little trickier for retirement savings accounts such as IRA’s, 401k, and 403b. If you live in a community property or marital property state, your client will need to obtain a signed consent from their current spouse to name someone else as beneficiary. In fact, most financial institutions require a spousal consent for a non-spouse beneficiary designation regardless of where the IRA owner resides. Experts believe this is simply a policy protection from beneficiary related litigation for custodians. Depending on a number of factors including the divorce agreement, retirement savings accounts such as IRAs and 401Ks, and life insurance may require your client’s former spouse to remain the beneficiary even after they have reached agreements around the division of assets.
Many people will negotiate the date on which they will take status as single person for tax or other purposes. Waiting until January 1st of the year following the separation may be mandated by state-instituted waiting periods, income tax planning, insurance eligibility, or any number of other practical financial considerations. This mandate provides a perfect example of an unintended consequence of negotiations including the change in beneficiary. But one thing is for sure, most people want the transfer of assets sooner than later so they can move on with their lives.
Once the transfer of assets is completed, now what? Who do you turn to for trusted financial advice? The financial transition following divorce offers the opportunity for clients to remake their financial lives in a way that supports their ongoing comfort, security, and dreams. Most importantly, it offers the opportunity to take control of their finances as a single person. People should seek the help of an experienced independent financial planner who operates under a Fiduciary Standard. Ignoring the situation or putting it off for another day could have huge unintended consequences. We strongly recommend addressing this key financial decision sooner than later.
Doug Wright, CRPC is President of Wright Choice Financial Group, LLC. He speaks throughout New Hampshire on topics ranging from Women and Money to Retirement Planning and Social Security. He has been helping folks prepare for retirement for over 13 years. He is an independent advisor operating under the Fiduciary Standard and holds the designation of Chartered Retirement Planning Counselor. Please feel free to contact him at 603-262-3510.