Even the most amicable divorce will have major financial implications, a fact that is easily overlooked during the emotional turmoil that accompanies the process. As a result, people often make financial mistakes during the divorce process that affect them for years afterward.
This blog outlines the top five financial mistakes made by divorcing spouses, along with advice on how to avoid them. Some of these situations can be successfully navigated by being extra-diligent, while others require input from a qualified financial professional. In addition, we highly recommend speaking with an experienced divorce attorney before you proceed.
1.Failing to keep track of expenses. Everyone knows how much money they take home each month after taxes, but most are at a loss when asked what they spend it on. To get an accurate idea of your future needs, take the time to write down and add up your monthly expenses. It’s critical that you know how much money you need to support your lifestyle.
2.Assuming that the parent with primary custody / more custodial time should retain the family home. If the children will be primarily in your custody, you may assume that you should keep the family home and avoid subjecting yourself and the children to the added stress of moving. But it may not be the right financial decision. Put aside your feelings of attachment and ask yourself if you can realistically afford the house on your own. Mortgage payments, property taxes, and maintenance costs may exceed your planned budget.
3.Believing that an equal division of assets is a fair one. An assets’ worth is not always defined by its present market value. Income-generating assets, such as rental properties, may be worth more than their market value. When you and your spouse agree that you will receive property of equal monetary value, it doesn’t necessarily mean that your share of the assets over time will be truly equal. When negotiating, get professional input on particulars such as present value and transaction costs.
4.Failing to acquire insurance in support of alimony and child support. No matter what a judge may order, you will receive alimony and child support only if your spouse is able to pay it. If they die or become disabled, the support stops, putting you and your children in a perilous financial situation. Request that your spouse either modify their existing life insurance and disability policies or take out new ones that keep paying even in the event of their disability or death. If you believe that your spouse may voluntarily stop making payments on these policies, you can ask for a court order forcing them to keep the policies active.
5.Failing to properly understand liability for unsecured debt. Â In most cases, unsecured debt incurred during a marriage is a shared liability no matter which spouse technically used the credit card. When you divorce, you and your spouse will divide responsibility for these debts, but credit card companies are not bound by your settlement agreement. If your spouse stops paying, they can come after you for the outstanding payments. If possible, pay off all debts before the divorce is finalized.
Separating financially from your spouse may be tedious, especially when you’re already dealing with a difficult emotional process, but you need to avoid making financial mistakes that will cost you in the long run. Please contact us today if you’d like to learn more!