Beyond the emotional toll of divorce, there are some financial missteps that can leave you in even worse shape if you don’t know how to avoid them. Here are five costly divorce mistakes to watch out for:
- Staying in a home you can’t afford. Many divorcing couples with children want to keep the family home intact in the belief that it will provide some needed stability. Unfortunately, because there are now two households to maintain on the same income, it may no longer be possible. Plus, the additional financial stress and worry can very well prove to be destabilizing to your family.
- Choosing the house over liquid assets. On paper, taking the house in exchange for your ex getting retirement or brokerage accounts of the same value may seem equal, but it’s not. A house is a fixed asset that you will need to spend money on to maintain, so your ex may be getting the better deal.
- Not considering taxes. Financial accounts are taxed differently. For example, withdrawals from a 401(k) are taxed as regular income, where withdrawals from a checking account are not. You must look at the complete cost of each asset when you are dividing assets in a divorce.
- Not getting a QDRO. If your ex has a retirement or pension plan that will be split in the divorce, you will need to get a court order known as a qualified domestic relations order (QDRO) to get access to your share. The administrator of the retirement or pension plan must approve the QDRO. If you are splitting a 401(k), you will need to roll it over to an IRA within 60 days or you will have to pay income tax on your half.
- Not getting life insurance on your ex if you’re receiving child support and/or alimony. If your ex is paying child support and/or alimony and dies, you could be in a financial jam if there isn’t a life insurance policy on your ex that names you as the owner and beneficiary. If you wouldn’t be able to meet your financial needs without these payments, you’ll need to protect yourself. Typically, the person paying the support must also pay the life insurance premiums, but this will need to be negotiated as part of your divorce settlement.
You can rely on Cistaro Law to skillfully negotiate and mediate your issues to a satisfactory resolution. Should the need arise, you can also count on our experience for being aggressive litigators if the situation calls for a more assertive response. Contact us today for your free consultation.
