Can you believe that the year and gulp, the decade, is almost over?? With less than one month to go before 2020, there is no time like the present to take stock of your life. I know that I am. And while you may rather focus on decluttering your home (me right now) or making sure that you have the right Christmas present for grandma, you can’t leave your divorce off of your to-do list. I know that your time is precious, so I’ve created this easy to follow year end divorce checklist to make sure that you don’t forget these crucial tasks during the busy holiday season.
In this article I will discuss why you need to include the following on your divorce checklist:
- Gather documents for taxes and check your withholdings;
- Organize year end financial statements for divorce;
- Review your financial status and create a budget for next year;
- Obtain information about next year’s insurance coverage and costs;
- Check the beneficiaries for your retirement and life insurance policies;
- Use up FSA monies and report unreimbursed medical expenses; and
- Check your Will (or get one!).
Divorce Checklist #1: Gather documents for your taxes and check your withholdings.
Don’t wait until the last minute to gather your tax documents! Make sure that you put this at the top of your year end divorce checklist. This is particularly true if you plan on filing your taxes with your spouse for this tax year.
Why is this so important?
Sometimes parties disagree about what to do with a liability or refund for a post separation tax year. This can require negotiations with the spouse and, if you have attorneys, your lawyers as well. So planning for taxes as early as possible will help you avoid having to file an extension or pay a penalty for a late filing.
While W-2s and 1099s don’t start coming in until January, you can still use this time to gather information about things such as charitable giving and tax payments made during the year. Also, if you are self-employed or own a business, now is a great time to gather information about your business deductions.
Don’t forget to include checking your withholdings on your year end divorce checklist!
Now is a great time to check your tax withholdings and make any necessary changes for next year. Why is this important? When you signed up with your employer to have certain taxes taken out of your pay, you likely used the tax filing status of married. However if you are now divorced, or are going to be divorced in the next year, your filing status will likely be single or head of household (if you have kids).
If you don’t make that change with your employer, they will continue to withhold monies from your pay for taxes as previously directed. Why could this be a problem? Leaving your status unchanged could result in too little of taxes being taken out of your pay which, could mean that you may get an unexpected tax bill in April. Who wants that??
Also, have you and your spouse agreed that you will share the ability to claim your children on your taxes? Make sure that your withholdings also reflect the loss (or addition) of a child too!
Divorce Checklist #2: Organize year end financial statements
Are you still in the divorce process? If your property distribution has not yet been finalized, then it is important that you add collecting (and organizing) your financial information to your year end divorce checklist! Don’t wait until your attorney asks you for these documents!!
So what statements should you be gathering? I recommend that you start collecting the following:
- Bank statements;
- Investment account statements;
- Retirement (401(k), 403(b) and IRA) statements;
- Statement indicating cash surrender value for life insurance policies;
- Annual pension plan statements; and
- Social security documents indicating increase in next year’s monthly benefits, if you are collecting regular or disability payments.
After you have gotten all this information, the next step is to organize it! Keep all statements for each account together and put them in chronological order. Giving these documents to your attorney in this organized fashion will not only help them evaluate your case faster, it will also save you money!
Having to organize a client’s documents myself takes work and, as a result, legal fees! Also, it is likely that your attorney will have to provide this information to the other side. Having these documents already organized and ready to go will also help to cut down on unnecessary fees.
Divorce Checklist #3: Review your financial status and create a budget for next year.
Financial insecurity is one of the biggest worries for divorced persons, particularly women. That’s why reviewing your finances and creating a budget needs to be on your year end divorce checklist.
Want to know where to start?
First, pull your credit report to see where you stand. Not only will you get your score, you can also see what accounts are in your name and your available credit. Knowing your credit score will also help you prepare for making major purchases after divorce, such as refinancing the mortgage on the marital residence or buying a new car. Second, gather information about all your bank and investment accounts so you can see what your balances are.
Third, look at what you actually spend your money on and start asking yourself tough questions. What is your income and what are your expenses? Do you have enough money to pay your bills? Do you need to cut something out? I really like using mint.com for this step. Mint helps you categorize your expenditures so it’s really easy to see where your money is going.
After you have an idea of your income and expenses, create a budget! While this budget may change after divorce, it is good idea to start getting used to living off of one income and planning appropriately.
Divorce Checklist #4: Obtain information about next year’s health insurance coverage and costs.
Do you have health insurance coverage through your employer? Most people do. Chances are the cost of that coverage may go up for next year. So why should you include getting this information in your year end divorce checklist?
First, the expense needs to be included in your monthly budget. Second, if the cost has significantly changed, you may want to consider filing a petition to modify your support obligation so that your child or spousal support order allocates the increased cost of your insurance appropriately between you and your former spouse.
You should also check to see if what is covered has changed. What if you take a medication that is no longer covered? What if the copays have increased? You need to include these additional costs in next year’s budget too.
What if you will be losing your health insurance coverage in the next year?
Are you on your spouse’s insurance policy? If so, your spouse will not be able to cover you after your divorce is final. Will your divorce be finalized next year? If the answer is yes and, as a result, you are going to be losing your health insurance, you need to start researching new policies now.
This is particularly true if you are not working or will not able to get insurance through your employer. While insurance is available on the open market, it is generally a lot more expensive than the premiums that you pay for employer sponsored insurance. Make sure that you know what a new policy is going to cost so that you can include it in your budget and, if possible, include it in your reasonable needs for an alimony analysis.
Divorce Checklist #5: Check beneficiaries on retirement and life insurance policies.
Do you remember when you signed up for your retirement plan at work? Or got a life insurance policy? Well, then perhaps you remember listing someone as a beneficiary of your policy, someone who would get your money if you passed away. Chances are, if you were married at the time, you listed your spouse. Sound familiar?
Well fast forward to now. You are getting divorced and that person is still listed as your beneficiary. Do you still want them to be?
Probably not. So, make sure that you put reviewing your beneficiaries on your year end divorce checklist. Some policies will not allow you to remove a spouse without a divorce decree or a signed authorization. However, I suggest changing your beneficiaries for whatever accounts that you can.
Why is this so important?
Well, if you die during your divorce, the plans will automatically pay out on the policy or account based on who is the beneficiary. They don’t wait for a will or other court documents to tell them what to do. Therefore, your spouse may end up with money that they were not supposed to receive. Then, your estate would have to sue them to get the funds back. Sounds like a lot of work right? It is. Save time. Change your beneficiaries now.
Are you already divorced? Change your beneficiaries now!
Then, it is perhaps even more important you make these changes ASAP. You especially want to make sure that your spouse does not end up with even more of your money than they got in your property distribution. In fact, I think that this is so important that I’ve included it as part of my Essential Post Divorce Checklist. Don’t have a copy of that checklist yet? Make sure that you subscribe to my email list to get yours today!
Divorce Checklist #6: Use up your FSA and report unreimbursed medical expenses.
Do you have a flexible spending account (FSA)? A FSA allows you to set aside a certain amount of money, tax free, for child care costs and other specified expenses. This is different than a health savings account, which allows you to set aside a certain amount of money for specified medical expenses only. Most FSAs and HSAs are done through employer sponsored plans, but you can open these accounts on your own.
While HSAs, allow you to roll over money from year to year, FSAs require that you use up all the money by the end of the year (or a few weeks or months after the end of the year). Think of it as the “use it or lose it” rule. So, do it! Don’t give away your money! But, how do you do this?
One way is to make sure that you have submitted all possible requests for reimbursement by the deadline. You may even want to ask your spouse if he or she has any claims to submit. While you may not want to give away your money to your ex, you may be able to negotiate this benefit for something else in your final settlement award.
Does your support order require unreimbursed medical expenses to be split between the parties? If so, the end of the year is a great time to submit those expenses to the other side! Make sure that you follow your court’s rules when doing so. Some require certain documentation to be submitted before the other party is required to pay out.
Divorce Checklist #7: Check your Will (or get one!)
Do you have a will? When did you get it done? Chances are, if you had a will prepared while you were married, it leaves everything to your spouse. Again, flash forward to today. If you got hit by a bus tomorrow would you want them to get all of your assets?
I’m going to assume that the answer is no. So, make sure that you make an appointment to have your will changed before the end of the year so that, should you pass away, your money ends up where you want it to.
Don’t have a will? Well, get one! This is particularly true if you are going to be keeping or receiving assets in your property distribution. Don’t you want to make sure that those monies are gifted appropriately after your divorce? After all, you probably spent a lot of money on legal fees to get them! Make sure they don’t end up in the wrong hands because you didn’t get a will!
Which divorce checklist action will you do first?
While it may be more more fun to spend time making cookies and watching the Hallmark channel, you need to make time during this holiday season to complete the tasks on your must have year end divorce checklist. Doing so will allow you to enter the new year fresh and financially stable. Doesn’t that sounds a great way to spend the next decade? I think so too. A reminder of what you should have on a divorce checklist:
- Gather documents for taxes and check your withholdings;
- Organize year end financial statements for divorce;
- Review your financial status and create a budget for next year;
- Obtain information about next year’s insurance coverage and costs;
- Check the beneficiaries for your retirement and life insurance policies;
- Use up HSA monies and report unreimbursed medical expenses; and
- Check your Will (or get one!).
Have a question about what else you should be doing during this holiday season to get ready for next year? Let me know in the comments!
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