Post-Divorce Check-list: Navigating Life’s New Chapter

By: Iman Zekri, Esq.

Divorce is a moment that reshapes nearly every aspect of your life. As you embark on this new journey, addressing the legal, financial, and practical implications is crucial to ensure a smooth transition and a stable future. This article aims to educate you to confidently navigate aspects of estate planning, real estate management, and financial reorganization after a divorce becomes final.

Protect Your Legacy by Updating Your Estate Plan

Revisiting your estate plan is one of the first steps in your post-divorce journey. Your will and existing trusts must be updated to reflect your new circumstances and wishes. Ensure your assets are allocated according to your current intentions, not your former marital plans. This crucial step safeguards your legacy and ensures your final wishes are honored. Naples trust and estate planning attorney Braxton Bowen shares,

“As you embark on this new chapter of your life, it’s imperative to update your estate plan to reflect your changed circumstances. Failing to do so can result in unintended consequences, such as your assets being distributed according to outdated wishes or former spouses receiving benefits meant for others. By revisiting your will, trusts, and beneficiary designations, you ensure that your legacy is protected and your final wishes are carried out. Additionally, updating guardianship designations and healthcare proxies ensures that those you trust most are empowered to make critical decisions on your behalf. Additionally, updating durable power of attorney, guardianship designations, and healthcare proxies ensures that those you trust most are empowered to make critical decisions on your behalf.”

Redefining Real Estate

One of the key aspects of the divorce process is allocating how real property assets are divided between divorcing parties. Typically, the marital settlement agreement will require the execution of a deed before or after the final judgment to transfer the property title from one spouse to the other. Beyond determining who gets what, understanding the impact of dividing real property on mortgages and future property taxes is critical for effectively structuring a marital settlement agreement.

For most couples, the primary residence is encumbered by a mortgage. “Residential mortgages usually require both spouses to be jointly and severally liable for the debt repayment, meaning the lender can seek repayment from either or both spouses, regardless of who is responsible for the loan. Simply removing one spouse from the title does not necessarily absolve the non-owner spouse from the loan obligation,” says Fort Myers real estate attorney Alessandro Secino. He also shares,

“If the spouse retaining the property fails to make payments, the lender may pursue the other spouse for repayment. Furthermore, removing a spouse from the title often triggers due-on-sale provisions in the mortgage, allowing the lender to accelerate the loan and demand full payment within a specified time frame. In such cases, refinancing the loan or selling the property is often the only way to resolve these issues. It’s crucial to understand the potential impacts on your mortgage when considering a divorce.”

Another important consideration is the effect on property tax exemptions after recording a deed to the marital home. Florida’s Save Our Homes program caps the annual increase in taxable value on homestead property, resulting in significant tax savings for homeowners over time. Florida law permits divorcing parties to allocate a percentage of the exemption between the spouses, allowing the spouse retaining the homestead to keep part of the tax benefit while enabling the other spouse to apply a portion of the benefit toward a new homestead. This “asset” may not be top of mind for many couples going through a divorce, but failing to address it can result in one spouse losing a significant tax benefit in the future.

By understanding these key aspects and seeking professional advice, divorcing couples can navigate the complexities of real property division more effectively and protect their financial interests.

Capital Gains Tax Implications

If you plan to sell a property after your divorce, you need to be aware of the potential capital gains tax implications. The tax treatment depends on several factors, including the length of time you owned the property and, in the case of the marital home, how long you have owned it, how long you have used it as your principal residence, and whether you or your former spouse will continue living in the home. Erin Houck-Toll, a Florida Bar Board-Certified Tax expert shares,

“If you sell the marital home immediately after the divorce, you may be eligible for the capital gains exclusion ($250,000 for individuals, or $500,000 for married couples filing a joint return), as long as you meet certain requirements, including ownership and residency requirements.”

Generally, to claim the exemption, you must have owned and used the residence for periods aggregating two years or more in the five-year period ending on the date of the sale. In the case of a divorce, there are additional rules attributing ownership and use of one spouse to the other spouse for purposes of the exemption if certain requirements are met. It is, therefore, essential to consult with a tax professional to understand the specific implications for your situation and plan accordingly.

Financial Reorganization to Embrace Independence

Divorce marks the beginning of your financial independence. Start by separating joint bank accounts and credit cards, and establish individual accounts to manage your finances and credit score better.

Address any shared debts, including mortgages, car loans, and credit card balances. Clearly delineate responsibility for each obligation to protect your financial health and creditworthiness.

Develop a new budget reflecting your income and expenses, including potential alimony or child support payments. Adjust your lifestyle to align with your new financial reality, and explore opportunities to optimize your resources.

Personal and Legal Considerations

If you revert to your maiden name, update it on all legal documents, including your driver’s license, passport, and Social Security records. This step ensures consistency and avoids potential legal issues.

Review and update your health insurance plan to ensure adequate coverage for yourself and any dependents. Consider any changes in your coverage needs post-divorce and explore available options.

Maintain copies of all divorce-related documents, including the final decree, settlement agreements, and court orders. These documents are vital for future reference and legal compliance.

Moving Forward with Confidence

Divorce marks the end of one chapter and the beginning of another. For personalized advice and detailed planning, consult with legal, financial, and real estate professionals who can provide guidance tailored to your unique circumstances. Embrace this new chapter with confidence, knowing that you have the tools and knowledge to thrive.

Those needing assistance in divorce, marital and family law issues may reach me at iman.zekri@henlaw.com to schedule a consultation.