Nicole N. Middendorf, Financial Advisor
Strategic Financial Group
3030 County Road 101
Plymouth, MN 55447
TO CONTACT NICOLE MIDDENDORF E-Mail
The word has a certain power to
it. Divorce. The word that separates lives. Divorce.
The word that does not have to destroy your financial future.
Divorce is not a taxable event. It
is what you do with the assets after the divorce that can impact you for
the rest of your life. So, educate yourself now to avoid ending up in a
financial or emotional state you may not expect.
Before the divorce, you need to
determine the assets and liabilities of the marriage. You should
decipher between what is marital property and what is non-marital
property. In addition, you need to understand your assets and how they
can positively or negatively affect your future.
There are four basic things that
you will need to survive divorce: a place to live, little or no debt,
retirement assets and liquid money.
You should strive for a balance of each of these. You need a mix of each
of these categories, not an abundance of one category and none in the
We will go through each
of these four things.
Place o live:
In 1997, the tax code
changed relating to home ownership. A married couple is now able to
exclude up to $500,000 of gains and a single person is able to exclude
up to $250,000 of gains on the sale of their home as long as you have
lived in the home for two out of the last five years.
Depending on the divorce,
it may be advantageous for one spouse to take the home, while in another
situation it could be a disadvantage for the spouse to take the home.
You should understand how your divorce settlement will affect you now,
as well as five, ten, 15 and 20 years from now. A house is not a liquid
asset and if you look historically at the stock market, a house may have
less appreciation potential compared with money set aside for
retirement. This is where it is very important to establish a financial
Little or no debt:
You should understand
what the cost of credit means. Because there is a high cost to having
debt, you need to know the difference between good debt and bad debt.
You should be careful
when it comes to using credit to protect your assets and your future
because we live in a negative savings society. Contact credit bureaus to
get a copy of your credit report. If there are credit cards that have a
zero balance, call and cancel those cards.
As part of a divorce,
remember that the creditor wants the debt paid regardless of the
situation. So, if your spouse takes a credit card with your name on it
and does not pay that debt, the creditor will come after you.
When you are looking at
retirement assets there are many different vehicles in which you can
save money for retirement. Make sure that you do not forget some
accounts and leave money on the table.
If you receive retirement
assets from your spouseís 401(k) plan you may need a QDRO (Qualified
Domestic Relations Order) to separate those assets. The QDRO is a legal
document that is separate from your divorce decree. This legal document
is sent to the benefits department of the 401(k) plan provider to
instruct them how the assets should be divided. Make sure the QDRO is
written correctly BEFORE the divorce is final to ensure that you receive
your retirement assets.
Some benefit plans,
however, cannot be divided. In this case, you want tolook at other
assets of the marriage and receive those instead. For example, if a
pension cannot be divided, take more of the 401(k) assets of the other
If you receive retirement
assets from your spouseís IRA, you will need acopy of your divorce
decree and a few other financial forms to separate those assets. With
the 401(k) and IRA, you should change the account into your name and
roll the assets into another IRAaccount. This process is known as a
"direct rollover". This is another area where it is important to have a
financial plan in place so you can realize the foundation you are
setting for your financial future.
There are three different
general phases of the divorce process: the beginning of the divorce, the
middle of the divorce and after the divorce. In each of these stages,
your budget may be different, so you should make sure that you have
liquid money available at all times.
In the beginning, you
will need liquid money for the retainer to hire an attorney. You should
consider putting this liquid money in a money market account rather than
a savings or checking account. This is a vehicle where you are able to
earn more interest on your money. Make sure you understand what a money
market account is and what it can do for you.
To conclude, make sure
you understand the difference between assets, regardless of whether you
are single, married or divorced. Gather as much information as you can
about your financial situation. Know where your money is. Find out as
much information as you can on your own. It is always a good idea to
have copies of statements and to start listing all of your assets and
Separate your emotions
from your finances and remember to look at each asset as an asset. Donít
forget about the growth potential on assets. Remember how the different
types of assets work. If the only thing that you take away from this
article is to educate yourself, get organized, and ask for help you will
be on your way to achieving financial independence.