Editor’s note: This is the third in a series of articles on how to make sound financial decisions for divorcing couples.
FULTON, Mo.– A little knowledge and planning can make a big difference for divorcing couples, according to University of Missouri Extension family financial specialist Vivian Mason.
Mason offers the following facts that many divorcing couples don’t know:
• Under federal law, most individuals may continue their health insurance coverage for 18 months after losing qualifying group coverage. However, in the case of divorce or death, family members are entitled to 36 months of coverage. The employee is usually responsible for the cost of the premium, and divorcing parents need to determine who will pay this cost, Mason said.
• If they have been married at least 10 years, divorced spouses who have not remarried are entitled to draw spousal benefits under Social Security, which may be higher than their own. Mason said spouses who have been married slightly less than 10 years might want to consider this as they contemplate the timing of their divorce.
• One of the biggest mistakes divorcing couples make is failing to review and revise legal documents such as wills, beneficiary designations and advance directives. Mason advises divorcing couples to review these documents immediately to avoid any future surprises.
• One of the most overlooked assets in a divorce is retirement benefits. During the divorce process, each spouse should provide information on his or her plan even though neither spouse may yet be of retirement age. Military and government benefits should be considered as well. These may not seem critical when someone divorces at a young age, but they are vitally important to financial well-being in senior years.
• Make sure that debts are paid even though you are divorcing. Creditors are not bound to court agreements, even though the spouses are. No matter who charged what, a joint account means both spouses are legally responsible to creditors for debt repayment. Ask creditors to close joint accounts. Division of debt is often just as important as division of assets, Mason says. This is vital to protecting your credit history, which should be reviewed.
• Alimony is considered taxable income for the recipient and is a deduction for the one ordered to pay it. Child support is not taxed.
• Life insurance policies can be transferred to the ex-spouse. The owner has the right to designate beneficiaries and decide whether to continue the policy and pay premiums. Policies also can be cashed out, or the court can stipulate that the ex-spouse is required to maintain a policy to protect the income of the surviving spouse receiving alimony and child support.
For more information on financial planning and divorce, go to www.extension.missouri.edu/callaway/divorce.aspx.
Related MU Extension publications available for free download:
Next: Test your divorce knowledge.