Most Common Financial Mistakes Made in Divorce?
Divorce can place a heavy burden on your finances. Many financial mistakes during divorce could negatively affect you in the long run.
The most common financial mistakes made during divorce include:
- Not knowing marital finances
- Not considering mediation
- Not understanding your debt liability
- Failing to think about tax implications
- Fighting for the family house
- Not insuring the divorce settlement
- Not dividing comparable assets
- Not knowing your spouse’s work and stock benefits
A divorce lawyer could help you avoid these financial mistakes and pave the way for a bright future.
For a free legal consultation, call (256) 859-7277
The Most Common Financial Mistakes Made During Divorce
It is common for couples who are divorcing to make financial mistakes. You can avoid many of these mistakes with the help of a divorce lawyer.
The 13 most common financial mistakes made during divorce include:
- Not knowing your marital finances
- Not considering mediation
- Insisting you keep the family home
- Not dividing comparable assets
- Not understanding your debt liability
- Not knowing about your spouse’s work and stock benefits
- Failing to produce an accurate budget for alimony
- Failing to think about tax implications
- Fighting for assets you are emotionally attached to
- Not getting a professional opinion about investments
- Not discussing your attorney’s fee agreement
- Not insuring the divorce settlement
- Choosing the wrong attorney
Not Knowing Your Marital Finances
During a divorce, your attorney will comb through your and your spouse’s finances to understand your status as a couple and individuals. It is essential to know each of your assets to divide them. Your assets may include all income you and your spouse make, expenses, investments, properties, and other marital assets.
If your spouse maintained the budget, you might be unaware of your marital finances. This leaves you vulnerable to not knowing your entire financial picture. Your spouse could potentially hide assets or not disclose all of their income.
If you are not in charge of your marital finances, it is crucial to learn more about your assets quickly. Request reports to all financial reports and statements so you can fully understand your financial state.
Not Considering Mediation
Mediation is an intervention in a dispute between a couple. A mediator will meet with the divorcing couple to help them agree on different financial matters. The mediator is a third party who does not have a bias in the outcome of these disputes.
The process of mediation gives couples the ability to make their own decisions. However, once the process goes to the courts, the judge is responsible for making those family decisions.
Mediation is not required, but it can save couples a lot of money in legal fees. Without mediation, attorneys would charge for their services while negotiating agreements.
Insisting You Keep the Family Home
Deciding who keeps the family home can be a point of contention for some couples. While it may seem like the most convenient decision to stay in the family home, it may not be the best financial decision. When married, you may have had two incomes or didn’t have to pay for child care. Now that you are living alone, you may be unable to afford to pay the mortgage, property taxes, and home upkeep.
Before fighting to keep the family home, look at your anticipated post-divorce finances to determine if you can afford to keep it. While you may want to continue living in the family home, you could experience more financial freedom in a home you can afford. So make sure you can afford the family home post-divorce before fighting for it.
Not Dividing Comparable Assets
Throughout divorce proceedings, you must ensure you are dividing comparable assets. For example, if you and your former spouse own two homes, you must know their value. However, if one house is your primary residence and the other is a rental or investment property, those are no longer comparable assets.
The rental or investment property can provide income far into the future while the primary residence won’t. So, in the long run, even if the rental or investment property feels like the lesser property, its value could increase.
It is essential to keep this possibility in mind when dividing assets. In addition, it would help if you thought about what the value of your purchases will be in the future.
Not Understanding Your Debt Liability
When married couples accrue debt, both parties could shoulder the burden after the divorce. You could be responsible for any debt accrued during the marriage regardless of if your spouse used the credit card. After a divorce, your spouse may have acquired the debt when splitting assets and debts.
If your spouse is not paying off debts that were at one time in both of your names, it could affect your credit score. The credit card companies could also come after you to pay the debts. It is best to resolve credit card debt before you finalize the divorce. That way, you don’t have to worry about whether your spouse is paying it.
Not Knowing About Your Spouse’s Work and Stock Benefits
You could be entitled to collect your spouse’s work benefits and stock investments during asset division. Therefore, you should become familiar with your spouse’s benefits at work and the rights you may have to them.
Failing to Produce an Accurate Budget For Alimony
If you are seeking alimony, you must create an accurate budget. Make sure to include all current expenses in it. Also, set up a post-divorce budget for your anticipated monthly expenses.
If you need assistance creating a budget, seek the help of a financial advisor. They can guide you while you create a current budget and factor in the cost of inflation to calculate an accurate future budget. To receive enough in alimony, you must show how much your cost of living is.
Failing to Think About Tax Implications
If you are awarded money in a divorce, the Internal Revenue Service (IRS) could tax it. Consult an accountant to ensure you pay the IRS the money you owe them. Once you and your spouse are divorced, you may still have to file together the following year, depending on how long you were together for the taxable year.
Fighting for Assets You Are Emotionally Attached To
Fighting for sentimental items that have sentimental value to you could cause you to lose assets with a significant financial value, so you may want to keep the home the family lives in.
Some people give up retirement plans and investments to keep the family home. However, remember that if you get the family home, it is possible you can no longer afford to live there without your spouse’s income.
During the divorce, your priority should focus on maximizing your finances and supporting your new lifestyle once the court finalizes the divorce.
Not Getting a Professional Opinion About Investments
Investments are assets that you can divide during divorce proceedings. You may think an investment account will grow throughout its lifetime, and keeping that investment is worth giving up other assets. Before negotiating investment assets, speak to a financial advisor and get a professional opinion.
A financial advisor can guide you on the projected value of your investments in the future. That way, you won’t make mistakes when divvying up your investment assets by getting a professional opinion.
Not Discussing Your Attorney’s Fee Agreement
When searching for an attorney, you must understand their fee agreement. Many law firms will discuss the fee agreement when you start working together. That way, you will not have to worry about hidden fees or expenses during your divorce.
Not Insuring the Divorce Settlement
You can only receive alimony and child support payments if your former spouse can pay. Therefore, if they pass away, those payments could stop. However, you can request your former spouse obtains disability or life insurance policies, so you still receive the money you need upon their death.
Choosing the Wrong Attorney to Represent You
A divorce is one of the most stressful situations you could go through, so you want someone by your side who can advocate for you and make you feel comfortable. However, beware of choosing an attorney who doesn’t look out for your best interests financially.
Some attorneys are often too aggressive and may turn your spouse away from negotiating assets. This increases the possibility of your divorce going to court, increasing your attorney and court fees.
Choose a lawyer who will help you get the outcome you need in your divorce. They should listen to you and ensure you are comfortable with the process from start to finish.
Where to Start When You Need a Divorce Lawyer?
Summit Family Law believes in establishing relationships with clients. We also believe that relationships start with honesty. When you bring us a case or consult with us about a case, we will give you an honest assessment of your situation.
That means we’re going to be upfront with you about the potential strengths and weaknesses of your case. Reach out to us so we can assist you today.Â
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Possible Financial Benefits of Divorce
While there are many financial mistakes you can make during a divorce, there may also be economic benefits you’d want to take advantage of.
They include:
- Easier budgeting
- Possible early access to retirement funds
- Your children possibly receive more college financial aid
- More social security perks for divorcees of retirement age
- Setting your financial priorities
While these benefits can provide you more freedom with your finances, they will not make up for substantial financial losses from mistakes made during a divorce.
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How Divorce Affects People Financially
Divorce itself is an expensive endeavor to take on. Besides attorney’s and court fees, you could be paying your ex-spouse monthly alimony or child support payments, so a divorce can significantly impact your finances. After divorce, you may need a raise in income to keep your current standard of living.
Divorce Can Financially Impact Your Children
While a divorce is between two parents, the financial impacts can affect children in the following ways:
- Children could spend less time with their parents. They may have to split time and go back and forth between two parents. The other reason they might have less time with their parents is if the parents have to work longer hours to make ends meet or get a part-time job.
- If the parents have strained finances after divorce, children may have to miss out on extracurricular activities they could participate in before. Some activities they could miss include sports, music lessons, and summer camps.
- Children with divorced parents who have financial struggles could have a hard time in school. Their parents might not be on the same page about their grades, or they don’t have consistency at home. If the children switch between their parent’s households, the lack of consistency could significantly impact their schooling.
- After a divorce, the children’s health insurance coverage could change.
Divorce is a common way for many families across the United States to fall into financial difficulties. However, a divorce lawyer can help you maintain a stable financial situation after a divorce.
A Divorce Attorney Can Help You Avoid Making Financial Mistakes
Knowing how you could make many financial mistakes during a divorce can seem overwhelming. Choosing an attorney that will calm your nerves and help you avoid making these mistakes is beneficial. They can allow you to take your time and make informed decisions about your future. Seeking assistance from a legal professional is the first step in avoiding the most common financial mistakes.
A divorce lawyer can listen to your story during a no-obligation consultation. Make sure the firm has handled many divorce cases and knows how to navigate the process so you don’t fall victim to financial mistakes.
Call or text (256) 859-7277 or complete a Free Case Evaluation form
