Money and children top the list of the things most people worry about in divorce. However, worrying about money does not necessarily protect you against making financial mistakes in your own divorce.
Here are the top 10 financial mistakes people make in a divorce so you can hopefully avoid making any of them:
1. Finalizing a divorce settlement before doing a post-divorce budget.
These days, most people do not make or follow a household budget. But in order to make the best decisions about your divorce settlement, you have to do a post-divorce budget so you know what you will need to live on after the divorce is final. Otherwise, you may find yourself having to work two jobs to meet your needs.
2. Failing to provide all your financial documents.
Yes, it’s a hassle pulling together all your financial documents as you prepare for divorce. You may even be tempted to take some short cuts, but you’ll only be shortchanging yourself. You will not be able to divide assets and debts fairly in your divorce if you don’t know your entire financial picture.
3. Failing to get your assets valued.
Getting appraisals on your home and other assets is another necessity for determining your financial worth. If assets are divided without knowing their true worth — for example, learning the present-day value of a pension — can be a big financial mistake that you may have to live with for years.
4. Not understanding your finances.
If your eyes glaze over every time you look at a spreadsheet, you are going to have to make yourself understand your finances or risk getting the short end of the stick in your divorce.
5. Not getting financial advice from an expert.
Many people make the mistake of relying on their attorney to do everything, including providing financial advice. While your attorney may be great at giving legal guidance, he or she may not have the financial expertise you need, especially if your divorce involves a business or other complex assets. Consulting a divorce financial planner is a wise move and puts you in a better position for negotiating a settlement that will provide you with what you need post-divorce.
6. Not understanding the impact of taxes.
Under current tax law, an ex-spouse paying alimony will no longer be able to deduct it from his or her federal income taxes. The ex-spouse who receives alimony will potentially benefit since he or she will no longer have to declare alimony as income and pay taxes on it. In short, this relatively new change in the federal tax law shifts the tax burden of alimony from the payee to the payor. In addition, if you are the spouse keeping the house, you need to be sure you can afford the property taxes.
7. Failing to focus on the long term.
Unless you will be receiving support for the rest of your life — an exceedingly rare occurrence these days — you will need to plan for the time when your support runs out. Even with support, you may still need to find a job. If you are unprepared for today’s job market, you will need to take the time for any needed education or training so you are able to support yourself. If you will be paying support, you will need to be clear on when that support ends and whether or not it can be modified or extended.
8. Not considering insurance.
If you have children, having life insurance on both you and your spouse is critically important to ensure they will continue to be supported should one of you die. You must also carefully consider the cost of health insurance and how it will affect your post-divorce budget.
9. Putting your children’s desires before your own financial security.
Spending your retirement savings on expensive schools or extracurricular activities for your children is a common mistake for many divorced parents. Most of this spending is done out of guilt, but how will your children feel if they have to support you later in life? Teaching children that you must live within your financial means is an important life lesson.
10. Rushing settlement decisions.
While you probably want your divorce to be over as soon as possible, letting impatience take over compromises your ability to make good decisions on issues that you will have to live with for a long time. Even under the best of circumstances, divorce takes time. By rushing through important decisions, you may be compromising the quality of life for you and your children long after the divorce is final.
When you are faced with an important life decision regarding a key family relationship, the advice and assistance of an experienced family law attorney often prove crucial to your understanding of the issues involved and your satisfaction with the ultimate outcome of your family law matter. Contact us today for your free consultation.