Financial Mistakes People Commonly Make During Divorce

on Jun 13, 2017 in Divorce

Getting a divorce is emotionally and financially draining.  Parties often want to get the process done as quickly as possible so they can move on with their lives.  This thinking is completely normal, but it is important to avoid common financial mistakes in your divorce.

Lacking a Complete Financial Understanding

Perhaps one of the biggest financial mistakes a party to a divorce can make is not knowing the finances of the parties.  Often, one spouse handles most or even all of the financial decisions for the household.  That party obviously has an advantage in the beginning.

If you think your spouse is preparing for a divorce or if you are considering a divorce, gather as much information as possible as soon as you can.  Make copies of all financial documents, including savings, checking, retirement and brokerage accounts, tax returns, and credit card statements.  Any information you can give your attorney will help achieve a fair and equitable financial settlement.

If you are concerned that your spouse may cash in assets or transfer ownership of marital assets, consider retaining an attorney immediately to protect your interest in those assets.  Your attorney knows the necessary steps required to preserve your assets.  This may include contacting the holder of the assets and getting an order from the court preventing transfer of the assets.  Additionally, it may be a good idea to watch balances in jointly held accounts.  This includes the cash value of life insurance policies. If your spouse moves or uses assets without your knowledge and consent, your attorney may need to hire a forensic accounting expert.  The expert can help locate and value any assets taken.

It is vital that you have complete knowledge of all of your assets.  Only then can you and your attorney be sure you are getting a fair property settlement.

Not Remembering the Whole Picture

Sometimes parties can focus on the major issues in a divorce and forget about all of the details and the entire picture.  Who gets the house and custody issues are very important.  But the parties also need to remember other things, such as retirement planning and tax benefits.  For example, the parties can trade the child exemption on tax returns in alternating years. Other couples agree one party will take the child exemption each year, in exchange for something else the other party wants.  It is important to keep the big picture in mind, rather than allow short term calculations to set you back over the long term.

Focusing on Revenge

Parties in a divorce sometimes focus on getting revenge against their soon to be ex-spouse as their number one priority.  This is another of the biggest financial mistakes parties make.  Anger, hurt, and pain should not dominate your decisions when you are going through the divorce process.  Contesting every issue in a divorce will take time and you will incur significantly more attorney’s fees.  Further, you may not get the best outcome possible.

Be honest with your attorney and prioritize issues.  This way, your attorney may be able to resolve your case in a way that maximizes results for you and your family in both the short and long term.  If you are hurt and struggling emotionally, those issues should be resolved with a therapist or friends, not your attorney or through the court system.  Instead, your focus in the divorce is best on getting the best financial outcome, and the best property and custody settlement, for your family.

Keeping More House Than You Can Afford

Divorces involve significant changes to your life.  Often, it is tempting to hold on to whatever you can, including your marital home.  Getting the house, of course, likely results in negotiating away your interest in other property or significant cash.  A spouse often believes he or she can afford the house payment, taxes, upkeep and utilities.  Often, after some time passes, they realize they cannot afford the house.  Other times, the party can afford the house but little else.  Changing markets also affect the value of the property.  Discuss all options associated with the marital home with your attorney, who will have a recommendation made based on realistic financial considerations, not emotional attachment.

Failing to Consider Real Costs

Consider more than the current value of an asset when dividing your property.  When calculating the true value of an asset, taxes, penalties, and maintenance costs, if any, detract from that value.  For example, if you are awarded a property and plan to sell it, any tax consequences necessarily reduce the value of the asset.  Similarly, if you plan on cashing out a retirement account, calculate both taxes and any penalties incurred if you liquidate that asset.  Consideration of the real cost of dividing an asset is essential before making any decisions regarding division of property.

Failing to Remember Insurance

Insurance of all types can impact your divorce settlement.  Life insurance is often a monthly cost, but depending on the type of life insurance, it can also be an asset.  Health insurance and automobile insurance, on the other hand, are essential costs (but not assets) that must be calculated into your budget after a divorce.

Failing to Produce an Accurate Budget

It is common for parties to underestimate living expenses when creating a post-divorce budget.  This affects eligibility for temporary maintenance (also known as “alimony.”)  It can also impact your ability to realistically assess a potential property settlement.  For example, can you really afford to keep a retirement asset or do you need more cash?  Can you really afford to keep the marital house?  Every situation is different.

A financial professional can help you create an accurate and complete budget.  That expert will point out gaps in your proposed budget, helping you include expenses you may not have otherwise considered.  A disinterested professional’s input assists in avoiding financial mistakes unique to any given situation.

Failing to Hire a Family Law Attorney

If you are getting a divorce, or are considering a divorce, having an experienced family law attorney on your side is critical.  The lawyers at Fait & DiLima focus exclusively on family law issues.  Contact us for a consultation to discuss your case.