3 Divorce Mistakes That Could Totally Ruin Your Retirement and How to Avoid Them
Going through divorce is tough even without having to deal with financial settlements. Should the need arise, do you know how to avoid making mistakes that could cost you a fortune? Join us in discussion with financial expert Pam Krueger who shares her list of avoidable mistakes. Enjoy the show!
My guest today is Pam Krueger, an investing and financial expert. She is an author and a television personality co-host at the PBS MoneyTrack show. Lucky for us, Pam is also the creator of a great tool called WealthRamp which connects consumers with fiduciary advisors. Welcome, Pam.
Thank you for having me, Margaret. I love being here.
I am so glad you are here, because your advice is invaluable. Sixty and Me reaches a large number of women over 50, many of whom are dealing with some key priorities in their life. Financial security is one of these priorities, and if you don’t have that, you are in a really challenging position.
I couldn’t agree with you more. Financial security is a very important factor, especially after 50.
Yes, it is. Actually, we have money concerns throughout our whole lives, but when you get to be 50, the concerns become of different nature. For instance, you may have been let go, or your position may have been closed.
One of the concerns which a lot of our women have dealt with or are dealing with is divorce. When we get our children off to school and the nest empties out, it’s time for us to rediscover ourselves.
Sometimes that results in a divorce decision. Can you give our women advice about the financial errors they should avoid at that time?
I knew we were going to talk about this topic, Margaret, so I did some research online. I was blown away to find out that the divorce rate for women over 50 has doubled since the 90s. What’s more surprising is that couples over 65 have tripled their divorce rate.
It makes perfect sense though, doesn’t it? The kids are grown and out of the house, and no matter our income level, we’re taking better care of ourselves. So we want to live out the rest of our lives and be as active as we can and as happy as possible.
So why settle if you’ve been putting up with someone or something just because your kids were being raised? If you’re not willing to do that anymore, then I guess it makes sense why the divorce rate is higher amongst us who are over 55.
Absolutely. But the thing about divorce is that it’s often tangled up with emotion. You have been with this person for many years, and though you may feel ready to fly on your own, you may not be familiar with all that entails.
Some women, for instance, have not had to deal with finances at all in their marriage. They’ve got the potential but don’t feel sure how to proceed. And with the divorce being such an emotional thing, how do they deal with all that?
That’s true. Any marriage, over the course of time, has periods of divide and conquer. Each person tugs the power and responsibility in their direction.
For instance, the one spouse may have been more in charge of the day-to-day expenses while the other may have been in charge of the longer term, more serious and investment decisions. Which of these was your responsibility?
When I did my research on this topic, here’s what I found out. According to divorce forensics, accountants, lawyers and advisors, there are three exceptionally expensive mistakes that women make during their divorce process or just out of it when they’re trying to move on.
The very first one seems so basic, but it’s really, really important. After your divorce is final, because it was such an emotional event, all you want to do is throw that divorce agreement in a drawer and never look at it again.
That’s the most expensive mistake you can make, however, because not reading thoroughly through that agreement can cost you. Inside that agreement are conditions that you need to meet and follow through. You need to be able to act on them.
If you miss a critically important deadline, your spouse could take you to court for contempt. It may not sound realistic but it happens. It all comes back to you not reading the conditions of the divorce agreement, and missing your critical deadlines.
Yes, nowadays we don’t put much time into reading our contracts and legal agreements. Even with the convenience of electronic contracts, we still do not read through the texts.
I’m guilty of doing that, and probably, you are too. Even when it comes to installing or upgrading software, we simply ‘agree’ to it and don’t read anything about the legal contract.
Not reading the divorce agreement is definitely a mistake we should avoid.
If there’s any paperwork you should read, it’s this as it will lay out the rest of your life. Don’t skip over it, even if it means sitting down with your attorney one more time and taking a yellow highlighter to highlight the important dates.
The second mistake many women make is keeping their joint accounts. This mistake can cost you your savings, so please, be wise and close every joint bank account, savings account and credit card you have. Even if you’re on good terms with your spouse now, things change.
As life goes on you forget that you have this credit card or this savings account that is in both of your names. Or you may be thinking, “Well, we are divorced. He can’t legally use that account anymore.”
Actually, your spouse can legally use any joint account that still remains. So, whatever money you may have in that account will be available to him as well. Your attorney is not going to go change the name on the account for you. The smartest thing to do is to close every single joint account you may have had.
That’s great advice, really practical and to the point.
Here’s a real story to back this one up. One divorce attorney told me of a woman who was on great terms with her ex-spouse. But the man (who was remarried) needed money for whatever reason, and realizing the joint account of his ex-wife still had his name on it, he wiped it. So much for being on good terms.
The third most expensive mistake that you absolutely have to take care of yourself is the follow through of your retirement accounts and how those IRAs, 401K’s, 403B’s, pension plans and life insurance will be divided.
To follow through means that it’s up to you to change the beneficiary of these accounts. If something happened to you, the funds will not go to your kids, it will go to your spouse, unless you the beneficiary.
This is a really good point where any legal documents, wills included, are concerned. You should change your beneficiary and update any legal documents so your ex-spouse’s name is not on them.
Exactly. There is also the QDRO, or qualified domestic relations order, which is the court plan that actually spells out how the retirement plans are legally going to be divided among the spouses after the divorce. Do not assume that your attorney will take care of any of the details related to QDRO. That’s your responsibility.
Let’s say the court has decided that you have to split your 401K. You have to take the follow through step of actually making sure the court order gets to the plan administrator. Whether it’s your husband that is still working or it’s you, the employer has to be part of that process and approve it. Afterward, it goes back to the court.
Some attorneys have seen this process take nine months or even a year after the divorce. What if you are relying on this 401K and this IRA cash to support you in your retirement going forward and you are held up? There goes all your cash flow.
So you see, it’s up to us to do the follow-up – not just with the attorney. We also have to make sure that the court documents are approved and that they go to the plan administrator and then back to the court.
If your husband is the one who has to initiate the process, you have to stay after him and make sure he does it. You are going to be the one to nag your husband to follow through and say, “You need to do this. The court said we are dividing it this way.” It’s up to you to make sure it’s executed and acted upon.
These all seem to be situations where there is a reasonably good relationship between the spouses. In many situations, though, there is so much negative emotion involved. In those cases, you have got to be really strong and fight for your rights.
Thank you for this list of mistakes, Pam. I had never heard of them before. I’d heard about not settling for the house and looking for other financial division, but these are three really good ones. I am glad you mentioned them.
Certainly. I put emphasis on the third one, Margaret, because it’s truly the most expensive of the three. It’s the one that could ruin your life. The qualified domestic relations order is truly that important, and remember, it has to be written up.
My tip for you is this: since all accounts are already out in the open – IRAs, 401K, credit cards, savings accounts, etc. – take that list and next to each account write down what you are supposed to do about it and the deadline. Put all of that information on your calendar.
This is important because the divorce will have you emotional, and those feelings will mess with you. One day you’d be glad it’s over, the next you’d be feeling all alone.
This is where having a list like that and a deadline highlighted in yellow will be of much help. It will remind you that you have to keep track of things, that you’re responsible to follow through with your bank, with the court and with your husband – if he’s the one still working, so that the 401K you are counting on does not get held up.
That 401K and the retirement cash could be your biggest asset for now. You should even include your house on the list. Write down every single asset along with the action plan that you are responsible for and the deadline on it.
You are obviously an expert on financial issues. Are there financial advisors who can help you with all of that?
I would say there are no more than maybe 50 fiduciary financial advisors across the country who are forensic experts. They work with the accountants, the mediators and the attorneys and really do nothing but specialize in divorce planning.
If you are looking for an advisor to help you out, you must make sure they are a fiduciary, that is, that they take full legal responsibility for the advice that they give.
This has been amazing information, Pam. Thank you so much for going through those key points with us. It was great talking with you.
Has divorce risen on the horizon of your marital life? What steps did you take to make sure your financial situation did not collapse after all the papers were signed? Please share your tips and insights below.