Avoid these Money Mistakes in Divorce
For most, the divorce process is emotionally draining and mentally exhausting. Many, including myself, describe it as a time of being frozen, numb, or moving in slow motion. Despite the emotional and mental trauma, you will be expected to comb through your finances to the smallest detail and ensure that you are content with your settlement agreement. This can require a lot of time and energy!
Even if you feel like you are level headed, here are a few of the most common and costly money mistakes to look out for when getting divorced.
Underestimating post-divorce expenses.
You will be asked to do a financial affidavit that reflects your expenses post-divorce. It is crucial that you are realistic and include everything since this will determine if spousal maintenance is necessary or not. You want to include everything from your health care expenses to anticipated home or car repair charges you need for next year. If you underestimate your expenses, you could be in deep trouble when those expenses arise. If you are the primary income earner, this mistake could lead you to agree to pay maintenance that you ultimately can’t afford. A Certified Divorce Financial Analyst™ will help you analyze your affidavit for errors and make sure that you don’t miss anything.
Believing that your attorney will know everything financially.
Your attorney is an expert in the law, not finances. Would you ask your doctor for advice about your insurance? No, so why would you expect your attorney to be an expert in finances? The attorney’s job is to ask you to fill out your financial affidavit and assume for it that it is correct. A good attorney will glance over it looking for any major mistakes but that’s about it. The most commonly miss-calculated asset is a pension. And most times, the pension is the most valuable asset in a marriage. I often see attorneys accept a present value statement from a pension as the correct value to include as marital property. This mistake could leave out tens of thousands of dollars easily. Also knowing whether the pension can even be split properly by the company, or if it would be better to ask for another asset in its place is very important. A CDFA™ can value it properly, make sure that tax ramifications are taken into consideration and give accurate advice.
Review your filing status. If you complete your divorce on or before Dec. 31, then you cannot file a joint tax return. If you get a refund as a married couple, who gets that? Alimony can still factor into your AGI, but child support will not. Make sure to consult a tax expert for your specific tax questions and concerns. Retirement may look very different now in regard to taxes- you may have gained or lost a large retirement asset and need to see what that means for your financial picture. A CDFA™ can assist and show you what this means for you.
Letting attorneys do the talking for you.
Try and communicate with your spouse first – it saves a lot of money…TRUST ME. I understand it may be difficult to be in the same room with them but consider the cost of going from one attorney to your spouse’s attorney, then to your spouse and back to you- it adds up fast. This makes zero sense. Let things calm down a bit and then just try a phone call- see if you can work through an item or two. Just try and put the anger aside.
Letting your emotions make your decisions.
This one is hard. Hard, hard, hard. Sometimes you need a day or two to think it over and make sure you feel good about the decisions you are making- that is okay! Do not just say “let’s just get this over with.” A 50/50 split of assets is almost never truly equitable and will more than likely harm one or the other. Take your time, get to know what your future looks like and make sure to hire the right experts that will help.