Divorce and Finances: 5 Mistakes You Should Avoid
The end of a marriage is never an easy thing. Even when the decision to part ways was made jointly.
Even when you’re both committed to keeping things civil and amicable. Simply put, there will always be stressors that will further test your relationship, your patience, and your best intentions.
And what’s better at tearing people apart than money?
A survey from 2018 found that money impacted even newlywed bliss. In fact, it was found to be the most common stressor in relationships, with 36% of married couples worrying (and possibly arguing) about finances.
With this in mind, it’s essential to have a serious approach to your finances if you happen to be going through a divorce. The following are the top mistakes you’ll want to avoid during the process.
1. Thinking You Don’t Need Serious Representation
One of the elementary aspects of getting a divorce is seeking out the help of an experienced divorce attorney. Sure, you might think that you can get away with anyone or even a DIY approach. But the thing is, hiring a good representative isn’t about getting back at your ex. It’s about protecting your interests, finances included.
Asset division can be tricky, seeing that certain states have community property laws in place, which means that everything you or your partner have acquired throughout the marriage is considered joint property. Naturally, this makes the division of assets that much complicated, opening you up to unnecessary losses.
2. Not Keeping Track of Your Expenses
If you know that your marriage is coming to an end, it might be a good idea to become a bit more vigilant about tracking your expenses.
Keep tabs on how much you spend on bills, groceries, childcare, but entertainment too. This will help your attorney come up with a solid plan on how to split up your assets and whether you will need to pay spousal support.
3. Having an Unrealistic Perception of Your Post-Divorce Finances
We get it – divorce is a stressful time for anyone. And, once it’s over, you’re most likely to want to just kick back and enjoy your newfound freedom.
But here’s the thing. Unless you were the sole provider in your household, you’re likely to be looking at a much less advantageous financial situation from here on. So, take a pause before you go on that expensive holiday. Or get yourself a trendy flat. Or max out your credit card on a shopping spree. Sit down, and have an objective look at your financial circumstances.
Can you afford the mortgage, property taxes, and maintenance costs for your home? Do you have an understanding of the taxes you’ll have to pay once you sell off any of the assets you acquired in the divorce? Finally, are you ready to scale back your spending once your household income goes down?
4. Going into Your Retirement Savings
A lot of people tend to make the same mistake when they split up with their partners. As they’re in a poor financial situation and may need quick cash, they see the solution in tapping into their IRA or 401(k) accounts.
But the thing is, this is a huge mistake. For one, borrowing money from your future self means some relief now, but inevitable financial problems down the road. Secondly, it means losing a substantial amount (up to 10%) of the money you took out due to taxes. Finally, should you take a loan out of your 401(k), it means accepting the risk of having to pay it back in full should your employment situation change.
So, if you’re strapped for cash, selling off some other assets and scaling back might be the smarter solution. Sure, it’s not as attractive, but it’ll keep you much better protected in the event of unforeseen circumstances.
5. Being Sloppy with Paperwork
Once your divorce is all done, you might find yourself eager to put it behind you and forget all about it. And, sure, that’s an excellent way of moving on.
However, you must keep in mind that the paperwork is something you’ll need to keep. Don’t just hold on to your final judgment of divorce, but keep any court orders and possible appraisals safe as well. As for financial documents, you’ll have to hold on to them too. If you’re paying or receiving spousal support, these may need to be consulted in the future, so it’s best to have them handy.
Some Final Thoughts
Unfortunately, divorces can be messy, even when people have the best intentions. And when finances are involved, they quickly become more frustrating. That’s why it’s best to approach them in as objective a manner as possible.
Research your rights and any relevant laws. Hire an experienced representative. Most importantly, face your financial situation head-on. This way, you’ll have a much higher chance of going through it without unnecessary stress or losing valuable assets because of poor preparation.