Halloween is here! For many, the season’s scares prove a highlight. For others, like my daughter, the hideous skeleton decorations in store aisles or vampires on billboards create only dread. She lives October with her eyes closed and cringing. We ease her fear by taking her gently to the decorations to show they aren’t real. Much like we, as mediators, gently take clients through scary issues in divorce. Though they are more real than the Halloween scares, we show clients how to address them and find hope. Those issues include—
Scary Issue 1—Health Insurance
Because a spouse cannot stay on the other spouse’s health insurance once the divorce is final, health insurance proves a huge issue in divorce. Spouses struggle with health insurance for a variety of reasons:
- One has been at home for a number of years and will struggle to find employment that provides health insurance.
- One is too old to enter the workforce but not yet qualified for Medicare.
- One is self-employed or works for a company that doesn’t provide health insurance, or at least not an affordable option
Fortunately, there are ways to address the health insurance issue. Health insurance agents provide information about the range of options available both within the Marketplace (created under the Affordable Care Act), COBRA, and in the private insurance industry. Professionals offer information on what options may work best post-divorce.
Medicaid can be the best first step. At free or very low cost, Medicaid provides coverage as clients ease back into the workforce or need a bridge until Medicare begins. Medicaid also provides coverage for children at a much lower cost—which can ease the financial strain of divorce for both parents. This option also allows the parent on Medicaid to earn more income while remaining covered. Parents need to ensure their parenting plan complies with Medicaid requirements. Clients, especially those with specific medical conditions, should explore whether their providers take Medicaid before choosing this option.
For other plans, getting insight from insurance brokers helps clients find the best option for their situation. More, brokers help clients meet key deadlines. For example, while divorce is a qualifying event that allows a person to enter the marketplace outside open enrollment, this option only lasts 60 days from the date of divorce. With so much going on, this time can speed by as people cope with moving to a new home, setting up households, helping children adjust, and working. Consulting with a broker during or just after divorce helps preserve options.
Finally, some couples utilize maintenance as a way for the higher income earning spouse to pay for the other’s health insurance until the second is able to do so. This support often eases the medical concerns while paving the way for more cooperative conversations on other issues. When key concerns on medical issues are eased, other issues often follow.
Scary Issue 2—Retirement
Spouses often have very different amounts in their retirement accounts. This comes from:
- One stayed home and has little or no retirement
- One spouse’s retirement options at work were so much better than the other’s that the couple invested more heavily in the first’s—planning to share the jointly created proceeds
- The couple poured resources into the family business instead of retirement. One is keeping the business—what does the other do?
First, couples should know that most, but not all, retirement funds can be split between the spouses—even though they are in one person’s name. People sometimes believe that they will have to withdraw the money from the account to pay off the other spouse—incurring penalty and income tax liability in the process.
Fortunately, this isn’t the case. Plans like 401(k), 403(b), or 4o1(a) can be divided between spouses via a Qualified Domestic Relations Order, or QDRO. This is an order from the judge in the divorce case requiring the administrator of the retirement plan to divide funds for the other spouse. The terms of how to do this are clearly created in the Settlement Agreement for the divorce and included in the judge’s QDRO.
The funds separated out for the other person incur no penalty or income tax as they are simply rolled into a retirement account for the other person. There are even ways the recipient can hold out some of the funds before they are rolled into the retirement account. The amounts held out incur income tax but not penalty. This makes cash available from this account to help ease financial decisions for couples who don’t have a lot of ready cash. They also provide funds for someone re-entering the workplace or needing a cushion. The couple can work together to decide how the tax liability is managed.
For Individual Retirement Accounts (IRAs), only the Decree of Dissolution and Settlement Agreement is needed to separate funds from one person’s account to the other’s. The Settlement Agreement tells how the account should be divided. The Decree allows the administrator of the account to separate the funds. Again, as long as funds are rolled into another retirement vessel, no income tax or penalty is incurred. (Also—there is no penalty for withdrawing from retirement for those 59 ½ or older.)
When the family business is the retirement, issues prove harder to settle. Mediators help clients look at the entire financial picture to see the best way forward. Sometimes a buy-out provision over time both allows the marital interest in the business to be shared and also provides funds the recipient can put into their own retirement plan.
Scary Issue 3—Housing
“Where will I live?”
“Can we keep the kids in their school?”
“If I buy you out, the mortgage will be what??!!”
Questions abound around housing in divorce. Low interest rates from 2009 to 2021 allowed buyers to get into stable homes and reasonable mortgage payments. But, the interest rate increases beginning in 2021, along with dramatically rising housing costs, have made housing an overwhelming challenge. Many couples now can’t afford to buy a house in the same neighborhood where they live—making it hard when both parents want to be in the school system with children to ease parenting time transitions. High interest rates make it prohibitive for even one parent to stay by refinancing in their own name, especially if they have to buy out the other’s equity by adding it to the mortgage amount. Many wonder where they will live.
Fortunately, creative options abound for couples willing to work together. They include:
- When one spouse can afford to pay the current mortgage on their own but can’t afford to refinance in their own name, and the other can afford housing (either rental or purchase of another home) and is willing to stay on the first mortgage—couples can do so. Agreements are written to specify timelines for how long the arrangement goes, how equity in the home is eventually divided, and how to protect both people in the meantime.
- One step further—if the second home, to be affordable, is too small for children to spend the night, parents can opt for a “nesting” arrangement. Each parent stays in the marital home during their parenting time while the other either stays in a shared second home (i.e. studio apartment) or they each have somewhere else to stay during their parenting time (i.e. with family, friends, or small apartments).
- Many mortgage companies have begun to offer the option of one spouse assuming the current mortgage, even if the original mortgage wasn’t assumable, if the reason is divorce. The assuming spouse must be able to qualify to pay the mortgage on their own, and the couple must still agree on how the equity of the home is addressed in the overall financial settlement. But, this allows the assuming person the ability to keep the current mortgage payment—which often means children can remain in their home and in their school, even as their family changes.
Divorce brings many scary issues to the forefront. Yet, there are options. Mediators offer a creative forum for couples to address these issues in ways they know are best as well as options the couples may not know or think about.
At Resolution Mediation, we strive to guide couples through the scary to the best outcomes for all. Instead of closed eyes and cringes, couples find hope and peace.
If you would like more information on navigating all the decisions divorce requires, contact Resolution Mediation by clicking HERE or calling 317-793-0825. We look forward to serving you.
As always, the above is for information only. Seek a professional for guidance in your personal situation. This is an advertisement
