This week the Supreme Court ruled that companies are bound by what is written on beneficiary designation forms. This means that once your divorce is final, you need to review your beneficiary designations to be sure you are leaving your retirement benefits and life insurance proceeds to your intended heirs and not to your ex-spouse, if that is your desire.
In the Supreme Court case, William Kennedy’s wife waived her rights to William’s retirement money in their divorce decree. She was William’s beneficiary during their marriage. He did not change his beneficiary designation after the divorce. When he died in 2001, the company apparently sent William’s wife the balance in his account, $402,000. She had moved to Norway and then died in 2007. William’s daughter, Kari, claimed that her father wanted to leave his retirement money to her instead of to his ex-wife.
Since he never updated the beneficiary on this account, his daughter is not entitled to that money.
Regardless of whether you are divorcing, divorced, single or happily married, periodically check the beneficiaries on your retirement accounts and life insurance policies. I recommend everyone do that once a year. Then, someday, may you rest in peace.
When you are considering divorce, the second financial task is to decide which legal model to use – the preferred dispute resolution model of collaborative law or the litigation model.
The collaborative law process is a way for a couple to work together with their attorneys toward resolving conflict using cooperative strategies rather than adversarial techniques and litigation. The attorneys and clients sign an agreement that they will not go to court. If the process breaks down, the collaborative law attorneys must withdraw and the clients must retain new “litigation” attorneys. In this process, the attorneys get to use their best skills – namely the use of analysis and reasoning to solve problems, generate options and create a positive context for settlement.
You might think this is not a financial decision. You would be wrong. Your choice of divorce model is very much a financial decision. Based on my experience, couples that chose the collaborative model are those who preserved a greater percentage of their pre-divorce wealth.
When you are considering divorce, the first financial task is to compile your net worth statement. This is true whether you believe you are going to have a friendly or acrimonious divorce. You should really be compiling and reviewing your net worth statement quarterly even when you are happily married.
I have found that many couples do not understand their financial situation until they are in a divorce. Those who have chosen the preferred dispute resolution of collaborative divorce learn about their assets and liabilities at the beginning of the divorce. In collaborative divorces, a neutral financial professional (that would be my role) compiles the net worth statement and reviews it with the couple and their attorneys. We don’t play hide the ball in collaborative divorce cases.
If you are not going to use the preferred divorce method, but instead are going to have a litigated divorce and you are not the spouse who keeps track of your financial details, you are more likely to going to have a difficult time getting your arms around the true financial situation.
It is crucial to truly understand your financial situation during a divorce because it drives your short-term and long-term financial decisions.