If you’re looking at freshly signed divorce papers, you may also be thinking you’re looking at the end of a process. But your divorce decree is not an ending; it’s just one more step in the process of disentangling two lives. No two cases are perfectly alike, but this article will outline some of the most important, sometimes confusing, and potentially easy-to-overlook tasks you’ll encounter while wrapping things up.
Dividing Financial Assets
If your settlement was crafted thoughtfully, this should be a relatively simple task with no more than a handful of accounts to divide. Different account types are divided in different ways, and it’s important to understand how a given account is divided before starting. No matter what type of account you are dividing, if it was titled jointly during the marriage, best practice is to move the assets out of the old joint account into one titled in your name only. Then close the old joint account. In most cases, you’ll need to open an account in your individual name at the institution where the assets are currently held. Once you’ve claimed your portion, you’ll be free to move these accounts to another institution (more on this later).
Bank accounts are often divided by simply transferring money from the old account to a new individual account. You can also obtain a cashier’s check to be deposited into the new account. Brokerage accounts are usually divided by providing the brokerage a certified copy of your divorce decree and a letter of instruction signed by all account holders. This letter specifies which assets are to be directed to which individual accounts, and should also direct that the account be closed once assets have moved.
Individual Retirement Arrangement (IRA) accounts are divided in a similar manner. You’ll provide the brokerage (sometimes called a custodian) a certified copy of your divorce decree and a letter of instruction. This letter typically must be signed by both the party who owns the IRA and the party being awarded IRA assets, and it specifies which assets are to be directed to what account. Employer-sponsored retirement vehicles like 401(k) plans and pension plans are divided using a Qualified Domestic Relations Order (QDRO). This is a legal document that will be drafted either by your attorney or a QDRO specialist. This document instructs the retirement plan administrator to divide the plan assets (or benefits) as set forth in your divorce decree. The plan administrator will then create an account for you within the plan and fund it with the assets (or benefits) you were awarded in your divorce decree. Once this is done, you’ll receive correspondence from the plan administrator instructing you how to access your account.
None of these processes are automatic — you (or your attorney) must initiate them, and they’re usually not quick. Moving brokerage assets can take several weeks from start to finish. A QDRO can take months to execute; while there is no statutory deadline to start your QDRO, sooner is better than later because of the time required to complete the process.
Moving Financial Assets
Once the financial assets awarded to you are sitting in accounts with your name on them, you have the option to leave them where they are or move them to another institution. Moving bank accounts is straightforward: obtain a cashier’s check for the balance of the account and deposit that check at the bank of your choice. You may also choose to move assets between accounts at the same institution by requesting a transfer verbally or electronically.
Brokerage accounts and IRA accounts are a bit more complicated. In those cases, you’ll open a new account at the brokerage (or custodian) of your choice, and then complete paperwork with your new brokerage to move the assets directly from the old institution to the new. Often this is done using a system called Automatic Customer Account Transfer (ACAT) Service. Using ACAT Service allows you to move assets from one place to another without liquidating first — so your shares of XYC Corp move directly from where they are now to where you want them to be.
If you choose to move any 401(k) assets awarded to you, there are two major options (both are direct rollovers). You can roll over the 401(k) assets awarded to you to your current employer’s retirement plan, or you can roll over the assets to a Rollover IRA. In either case, it is vital that you do a direct trustee to trustee rollover to avoid any adverse tax consequences. Some clients make the mistake of doing an indirect rollover, which causes taxes to be withheld and may result in additional reportable income in that tax year. You also have the option to distribute the entire balance in cash, but this is often not a wise choice.
Refinancing & Re-Titling Major Assets
The family home is the biggest asset in many divorce cases; if it is retained by one party, there are two processes to consider. If the home is owned with no mortgage debt, the only action necessary is to have the asset deeded to the party awarded the home. This is done with a document called a Special Warranty Deed, which is used to transfer all legal title to the house from the giving spouse to the receiving spouse, and is typically drafted by your attorney.
In a case where the home was owned with mortgage debt, that mortgage needs to be refinanced in the individual name of the person awarded the home. This step really protects the party who was not awarded the home by freeing them of future liability for mortgage payments.
It’s also important to re-title other assets like vehicles. When it comes time to sell (or otherwise dispose of) these assets, if you don’t have clear title, you won’t be able to sell the asset easily. In Texas, vehicle titles can be transferred by visiting your county Tax Assessor Collector’s Office armed with a certified copy of your divorce decree and proof of insurance for the vehicle in question.
Updating Beneficiary Designations
Because of ERISA laws, your ex-spouse is likely the primary beneficiary on most of your retirement accounts and other financial accounts (and possibly on your life insurance policies). It’s typical for clients to want to change these beneficiary designations once the divorce is final. If you don’t update them and you pass away, it’s likely that your ex-spouse will end up with any assets where they are still listed as a beneficiary. Check your designations and make your wishes clear.
For existing retirement accounts, you’ll need to complete a change of beneficiary form and provide the institution that holds the assets with a certified copy of your divorce decree to prove that you are no longer married. Simply contact the institution where the accounts are held and request a change of beneficiary form to get started.
Bank accounts and brokerage accounts work in a similar fashion, but the relevant form is called a Transfer on Death or Pay on Death Agreement. Don’t forget your life insurance policies — contact your insurer or employer (for employer-sponsored insurance benefits) to find out how to update your beneficiary designations.
Planning for the Future
In the wake of a divorce, there are two types of plans that will need to be updated: your estate plan and your financial plan. Much like the beneficiaries on your retirement and financial accounts and life insurance policies, you should consider updating your estate plan to reflect your new status. This is especially important if you have minor children. If you desire your assets to pass to them, you’ll need to make special provisions in your will. If you ex-spouse was your executor, it may be important to change this element of your plan. If you have powers of attorney or medical directives that designate your ex-spouse to make decisions for you, consider updating these documents as well.
Divorce will certainly upend even the most carefully constructed financial plan. Now is the time to re-assess your goals, risk tolerance and savings habits. Are you still able to achieve your goals? Do you need to make changes to your spending and savings habits? If you didn’t have a financial plan before your divorce, now is the perfect time to put one together. Divorce can be a period of great upheaval, but it often represents an opportunity for a fresh start.
To facilitate getting through the post-divorce period, I’ve formulated a comprehensive post-divorce checklist that covers nearly every post-divorce task you might need to complete. It may take you up to 9 months to finish the list, but when you do, you’ll know you can move forward confident that you’ve emerged from your divorce with no lingering entanglements. Request a copy of this checklist by emailing me at firstname.lastname@example.org.
Simple estates are often divisible without too much fuss and don’t require assistance from a professional. However, some more complex estates may benefit from the intervention of a professional like a Certified Divorce Financial Analyst™ (CDFA®). If you find yourself overwhelmed with the mechanics of closing out your case, that might signal the need to hire someone to guide you through the post-divorce process.
Get the help you need.
 Some clients are tempted to move the assets awarded to one party out, and then re-title the account from joint to the name of the party whose assets remain. This isn’t optimal and is often frowned upon by financial institutions.
 A letter of instruction to divide a brokerage account should be specific with respect to the holdings and the number of shares to be moved. For example, you should not say, “Divide the account 50/50.” Rather, you should say “Move 100 shares of XYZ to account ending 1234 and 100 shares of XYZ to account ending 6789”…and so on until the assets are divided.
 Check to make sure that the plan accepts incoming rollovers.
 Complex cases may require the services of an attorney who specializes in Real Estate transactions.
 ERISA is the Employee Retirement Income Security Act. This Federal law requires that a married employer retirement plan participant list their spouse as the primary beneficiary on their employer retirement plans and some employer benefits. Texas Community Property rules often dictate that a spouse be the primary beneficiary on IRA Accounts.