If you are going through the process of ending your marriage, we have put together important considerations to help you through this challenging life transition.
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The financial implications of a divorce can be complex, but critical to your future success. This information will help you feel empowered to navigate the process with confidence.
Financial Planning Considerations
Learn about the resources available within the military community. There are sources of support and information available online and at the installation.
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(Preparing for Divorce)
Going through a divorce can mean difficult life transitions, but it also offers opportunities to learn, grow and emerge feeling stronger. It’s important to know you are not alone during this challenging time. The military community is here to support you and your family with a wide range of resources, benefits and legal protections.
The information provided here is intended to address the financial aspects of your divorce. However, every household faces unique money challenges so it’s often smart to discuss your specific situation with a Personal Financial Manager (PFM) or Personal Financial Counselor (PFC) on your installation or a financial advisor outside of the military community.
Tasks to consider before divorce
✓ Seek Help
You may feel overwhelmed with the amount of information available if you're contemplating a divorce. One of the best ways to protect your rights during this emotional and complex process is to seek legal assistance. This is especially true for military spouses, since divorce laws can vary from one state to another, and where you file can make a big difference in how your case will proceed. Keep in mind that any legal services other than the installation legal office, will most likely incur a cost. You may want to ask about cost up-front as you seek assistance just so you’re prepared in advance. Some installation legal offices may be limited to supporting only one party of a divorce, so seeking assistance early may be beneficial.
Here are a few legal resources that may be helpful:
Services at no cost may include mediation, separate legal assistance for the Service member and spouse, legal advice, and notary services. Click here for more information.
A civilian attorney, who is familiar with military benefits and local state laws, could be helpful in your situation.
Arbitration is a more informal approach to divorce that happens outside of court. Divorcing couples still pay for their attorneys, but an arbitrator makes ruling decisions in the case. The details of the case remain private, and the process can be more efficient than the traditional court process.
Mediation might be helpful for divorcing couples who need extra help to resolve differences of opinion. A mediator tries to resolve a dispute before the case goes to a court hearing. Mediation results are non-binding, unlike arbitration.
Here are some other resources that may be helpful:
In addition to legal and financial challenges, divorce can be a stressful and emotionally challenging time. Call Military OneSource at 800-342-9647 to learn more about non-medical counseling and other services, and find support for the other members of your family. You can access counseling face-to-face, online, by phone or by video chat.
Even in an amicable divorce, it can be a good idea to hire a CPA who can help ensure that all assets and liabilities are accounted for, fairly valued and equitably divided without incurring unnecessary taxes.
✓ Understand Your Rights as a Military Spouse
The Uniformed Services Former Spouse Protection Act (USFSPA) is a federal law providing certain benefits to former spouses of military members. Under this law, former spouses may be entitled to portions of the military member’s retirement pay, as well as medical care and exchange and commissary benefits. Former spouses are not automatically entitled to a share of the Service member’s retirement pay or pension. Any portion would be a result of a court order. Here are some general guidelines used.
Under the USFSPA, the 10/10 rule allows former spouses of Service members to receive their court-ordered portion of the Service member’s retirement pay directly from the Defense Finance and Accounting Service (DFAS).
The 10/10 rule does not entitle the former spouse to a portion of a Service member’s pension, which is determined by the court.
The Service member and former spouse were married to each other for at least 10 years, and during the time of marriage, the Service member performed at least 10 years of military service creditable toward retirement eligibility.
Under the USFSPA, the 20/20/15 rule allows former spouses of Service members to receive their court-ordered portion of the Service member’s retirement pay directly from the Defense Finance and Accounting Service (DFAS).
The 20/20/15 rule does not entitle the former spouse to a portion of a Service member’s pension, which is determined by the court.
Non-remarried former spouses may receive TRICARE benefits for up to one year after the official date of the end of marriage.
The Service member and former spouse were married to each other for at least 15 years, and during the time of marriage, the service member performed at least 20 years of military service creditable toward retirement eligibility.
Under the USFSPA, the 20/20/20 rule allows former spouses of Service members to receive their court-ordered portion of the Service member’s retirement pay directly from the Defense Finance and Accounting Service (DFAS).
The 20/20/20 rule does not entitle the former spouse to a portion of a Service member’s pension, which is determined by the court.
Non-remarried former spouses may receive medical (TRICARE), commissary, exchange and Morale, Welfare and Recreation program privileges.
The Service member and former spouse were married to each other for at least 20 years, and during the time of marriage, the Service member performed at least 20 years of military service creditable toward retirement eligibility.
You may retain your identification card and continue to receive commissary, exchange and health care benefits until your divorce is final regardless of whether you meet the 20/20/20 rule.
- Installation housing — You will typically lose installation family housing within 30 days of the Service member or other family members moving out due to a divorce.
- Moving costs — The military may pay the moving expenses of the non-military spouse returning home from an overseas duty station. The divorcing parties could negotiate the cost of an in-state move as part of the settlement.
- Health care benefits — You can buy up to 36 months of temporary health care coverage through the Department of Defense Continued Health Care Benefit program when you lose TRICARE benefits because of divorce. Eligible biological and adopted children of the Service member may receive TRICARE benefits up to age 21 (or age 23 if enrolled in college). If employed, check out what coverage options your employer may provide as well. Learn more through the TRICARE website. Lastly, check out Healthcare.gov for additional options. Dental and eye care may be under separate policies, so be sure to look for specific coverages if applicable.
- Spousal and child support — Each military service has policies requiring Service members to support family members upon separation in the absence of an agreement or court order. These policies are designed to be temporary. A commander’s authority is limited without a court order. You must send the court order to the Defense Finance and Accounting Service directing the government to pay monies for support or alimony. Learn more on the DFAS website.
✓ Assess Your Financial Situation
A divorce can impact your finances in both short- and long-term ways. The immediate impact can be felt with having to pay attorney fees, litigation costs and living expenses for two households if you or your spouse has moved out. The long-term impact can be felt for months or years given changes in assets and income available to you, so it’s important to assess your financial situation as early as possible. Taking inventory of the information listed below can provide useful insight for your divorce, especially if you have not been the primary partner to handle the household finances.
An attorney can guide you through the key components of a divorce such as division of assets and debts, child custody (if applicable) and spousal support. However, it’s a good idea to begin thinking about the financial impact of these topics before meeting with your attorney. Here are a few financial issues to consider that may impact how you negotiate the financial terms of your divorce.
Assets like a house or car can be very valuable but are not as liquid as bank or investment accounts and generally require cash flow for ongoing payments and maintenance compared to assets such as retirement accounts. Keep the liquidity of your assets and cash flow requirements in mind, when dividing accounts and property.
After-tax Roth retirement assets may be more desirable than pretax traditional retirement assets since the taxes have already been paid.
A portion of either spouses’ retirement account may be awarded to a future ex-spouse.
Three significant tax considerations to keep in mind for your divorce are:
- Child support is not tax-deductible for the payer and is not taxable for the payee.
- Custodial parents can claim a qualifying child as a dependent on their tax return, unless an exception has been declared in writing for the non-custodial parent (IRS).
- Certain alimony or separate maintenance payments are deductible by the payer and taxable for the payee.
Loans may need to be refinanced to remove the other party from the debt obligation which might increase the percentage rate of the loans. Your credit score, debt-to-income ratio and the fair market value of the collateral can play a major role in refinancing any debt. Keep this in mind during your divorce process to identify potential problems that might make refinancing difficult, such as negative equity in a vehicle.
Protect your credit if you have joint debts. Maintain an amicable payment solution and check the payment status to ensure your credit isn’t damaged.
In many states, if there is child or spousal support obligations, the court may require the spouse paying support to have life insurance. A private life insurance policy has many components, including the owner, insured, payer and beneficiary. Since the owner of a life insurance policy can make changes to the policy, it’s often a good idea for the spouse receiving support to maintain ownership on a policy to ensure it’s paid on time, and the proper beneficiary is maintained.
✓ Mobilize Your Divorce Decree
A divorce decree is a court document that formally ends your marriage. It contains information about spousal and child support, custody, visitation, division of property and debt, and other important information.
It’s important to act according to your divorce decree when separating your financial affairs. The earlier you can “mobilize” or put your decree into action, the better.
The financial planning section of this page will walk you through some best practices to rebuild your financial life following your divorce.
(Rebuilding Your Finances After a Divorce)
Reshaping your financial situation after a divorce can be difficult. So, be kind to yourself as you handle the daily financial challenges in the months following your separation. Maintain a positive environment and focus on the financial circumstances over which you have control.
Ways to Rebuild Your Finances Following a Divorce
✓ Create a Post-Divorce Spending Plan
The foundation of a good financial plan is your spending plan, or budget. Creating a new spending plan after your divorce will help you map out all your current income and expenses, ensure bills are paid and financial goals are funded. In short, it gives you a clear picture of where you stand.
Step 1. Understand your current situation
In this step, it’s important to understand what’s really going on with your money today. Start tracking all your income and spending for at least the next 30 days. How you do the tracking is up to you, but what’s important is you do it.
Step 2: Know where your money should go
Financial experts offer these general guidelines when budgeting your money:
- Try to save and/or invest 10% – 15% of pretax pay for retirement.
- Strive to keep transportation expenses including car payments, insurance, gas and maintenance to 15% or less of pretax pay.
- Limit housing expenses, including mortgage or rent payment, taxes, utilities and maintenance to 25% or less of pretax pay.
While some of these guidelines may be difficult to follow immediately after a divorce, they should still provide a solid target for you to shoot toward.
Step 3: Create a plan
Build a plan for setting aside money and putting limits on how much you’ll spend each month per spending category. Prioritize your financial goals, which could include establishing an emergency fund, paying down debt or saving for retirement.
Step 4: Make adjustments
Update your spending plan as your life changes. Monitor your plan until you have fully adjusted your finances to reflect your new situation.
✓ Revisit Your Banking and Credit Cards
Many married couples find joint banking and credit card arrangements to be a convenient way to manage their household finances. However, per your divorce decree or as appropriate, you may want to close all joint credit card, bank, safety deposit box and credit union accounts. Then, open new accounts in your own name as soon as possible. Seek professional financial or legal advice if you’re unsure about taking that step.
Changing usernames and passwords to all financial accounts and examining your system for paying bills are also good banking-related tasks to consider. Late payments can hurt your wallet and your credit score, so it pays to stay on top of things. Consider paying bills through an automatic withdrawal from a checking or savings account.
✓ (Re)Establish an Emergency Fund
Financial experts suggest having some easy-to-access cash set aside for unexpected expenses, better known as an emergency fund. This is money that’s kept in a low-risk account, such as a savings account.
It’s often recommended to start with at least $1,000 in your emergency fund, with a goal to keep three to six months of living expenses in reserve.
Here are a few tips to build your emergency fund.
- Pay yourself first. Establish an allotment or bank transfer to set aside money each paycheck.
- Consider selling unneeded household items online or through a garage sale.
- Explore adding another source of income such as a second job.
- Visit the IRS Withholding Calculator to see if you should adjust your withholding to get more money per paycheck.
- Explore the possibility of a one-month deferral on your auto loan payment.
✓ Keep Up with Your Credit and Debt
At AnnualCreditReport.com, you can request a free copy of your credit report from each of the three major credit bureaus. Your credit report shows all the current credit that’s open in your name, as well as your history. Be sure to check for any name changes listed on your credit report because of your divorce decree. As you emerge from your divorce, pay special attention to your credit report to monitor for unauthorized activity like new accounts opened in your name. Also read your divorce decree to confirm who is responsible for paying joint loans; it’s important to monitor to make sure payments are being made.
✓ Retitle Property (Houses and Vehicles)
If you and your divorcing spouse own a home together, your divorce decree may call for the conversion of ownership of the property from both of you to just one of you. This can often be done by executing a quit claim deed. This deed must be filed with the county recorder where the property is located. You may also be required to refinance your mortgage or work out a mortgage assumption.
Other property that could potentially require title changes are vehicles, boats and recreational vehicles. The exact steps to doing this typically vary by location, and your legal counsel should be able to direct you to how to accomplish this for your situation.
✓ Review Your Insurance
Many people focus on the division of assets during a divorce, but the separation of insurances can be just as important. Review the coverages, premiums, deductibles and beneficiaries for each of your insurance policies. Since your circumstances have likely changed, make sure you have adequate protection that makes sense for your new situation.
As a reminder, former spouse health benefits through TRICARE will end on the day of your divorce unless you meet certain requirements. Ensure you arrange for coverage via TRICARE or other avenues, such as an employer-based health insurance plan or Healthcare.gov, before this date.
If you were covered by Family Servicemembers’ Group Life Insurance (FSGLI) at the time of your divorce, you can keep coverage for 120 days, but you will become responsible for making the premium payments. During this time, you can convert your FSGLI policy into a commercial life insurance policy. Visit the VA website to learn more about FSGLI.
✓ Update Your Estate Plan and Legal Documents
An estate plan helps your loved ones navigate a difficult time with less confusion, conflict and cost. Your circumstances, of course, have changed in the wake of a divorce. However, the distribution of your wealth and your medical wishes, should you become incapacitated, will not change unless you update the following documents that make up your estate plan. These include your:
- Power of attorney (POA)
- Medical POA
- Living will or medical directive
- Trust (if applicable)
- Family care plan
In addition to updating these key estate planning documents, it’s also important to review and update the beneficiaries on your accounts, as necessary and appropriate. Remember, who you designate as a beneficiary on your retirement accounts or life insurance policies will take precedence over your will, so make sure the right people or trusts are named. Consider the ways to ensure your minor children, if you have any, are included in your estate plan. Also be sure to give careful consideration for any special needs child.
Name a guardian if you have minor children. Generally speaking, your ex-spouse would be named if he or she is the parent of the child(ren). If this is not the case, or if something should happen to both you and your ex-spouse, it is important to name a guardian for any minor children. Your divorce decree may provide specific guidance on this subject, so be sure to update your documents accordingly.
Speaking of names, if you plan to change your name because of your divorce, obtain multiple copies of the divorce decree or court change of name document to update accounts and legal documents. Important documents include:
Focus on Your Future and Retirement
Most of the tips on this list focus on immediate actions you can take to reshape your finances. This final tip is all about planning for your future by taking time to review your retirement situation.
For starters, you may need to contact your ex-spouse’s retirement plan administrator if you’re going to split the balances of an IRA, TSP or other employer-provided retirement plan. In these situations, a qualified domestic relations order (QDRO) is normally required, and it should be part of the divorce settlement. A QDRO is a court order used to divide retirement benefits and accounts. Once the plan administrator processes the order, you may wish to roll funds directly into a similarly taxed retirement account. For example, a pretax Traditional TSP should roll into a pretax retirement account such as a Traditional IRA, Traditional 401(k), etc.
Next, review your retirement contributions. If you regularly contribute to a retirement account that has been partially depleted due to your divorce, it may be important to begin setting aside a larger percentage of your income, if possible, to replenish what you have lost. If you are unable to increase retirement contributions or even contribute at all, it’s often a good approach to still set a plan for how you’ll do it once your financial situation improves.
Finally, it’s usually wise to take a long-term view of your retirement situation. What sources of income can you count on in retirement? For many retirees, Social Security, pensions and personal investments are the most common methods to pay for retirement. Along those lines, take inventory of the following for your situation: