Starting over financially after divorce is difficult enough. Starting over after making bad financial decisions before and during the divorce process will make life a complete and utter nightmare.
Below are five personal financial mistakes to avoid that will help your transition from a financially secure marriage to a financially secure post-divorce life easier.
1. Holding onto the marital home when you can't afford it. After divorce the family home can be a sanctuary, the one thing that doesn’t change in a time of great change. This is especially true if you have children.
No one wants to uproot their children while they are also adjusting to their parent’s divorce. The problem is, the marital home can turn into a money pit, especially with only you to make a mortgage payment.
Before you dig in your heels and fight for the family home think about the tax consequences, the cost of yearly upkeep, how you will handle emergency repairs and what you will do if property values fall and your left with a home you can’t sell.
Ask yourself, is it more important to keep the marital home or, let it go and have one less money intensive issue to deal with on your financial plate?
2. Holding on to other possessions that you no longer need. Don’t hold on to things that you no longer need when they can better serve you by helping to secure your financial future. Be sure that what you are selling are your own personal possessions, and not marital property, and then find a reputable way to get the most value for your items. Selling things such as furniture you owned prior to the marriage, your diamond engagement ring and jewelry and other gifts given specifically to you can provide extra money to help you stay on your feet.
3. Not properly dealing with marital debt at the time of divorce. If you are a smart cookie you won’t file for a divorce until all or nearly all marital debt is paid off. In community property states you will be responsible for 50% of marital debt whether your name is on an account or not. Don’t make the mistake of thinking that just because this is the law, you are stuck paying.
Learn to negotiate! If your spouse has the higher income negotiate your settlement in a manner that means him taking on all or the majority of any marital debt. Don’t walk away owing more after divorce than your post-divorce income can handle.
4. Overestimating the power of your divorce decree. The day I went to divorce court I was satisfied with the agreement my ex and I came to. It was fair to both parties. I talked to my neighbor, an elderly man, later that day and he said to me, “A court order is nothing but a promise on a piece of paper.” In other words, all those agreements are about as valuable as the paper they are written on should your ex decide to defy the divorce court order. Which is something my ex did!
There are a few ways to protect yourself from an ex who may defy your court order.
- Have child support paid via in income withholding order. The support will come out of his check, go straight to the courts and then to you. The same can be done with spousal support. That takes away his ability to withhold a monthly check that you are dependent upon.
- Credit card companies and mortgage companies are not a party to your divorce settlement. Before you agree that your spouse will pay a debt that also has your name on it contact credit card companies and your mortgage company before finalizing your divorce settlement to find out what they need from you to remove any liability and minimize credit risks should your ex not pay the debt.
5. Hurrying the divorce process because you, "Just want to get it over with." I have a friend who became so weary with the divorce process that she agreed to allow her ex to claim the children on his taxes every other year. That decision cost her the child tax credit last year and any other expenses she could have deducted for the child.
If your child lives in your home over 50% of the year you can claim the child as a “qualify child.” If you ex has every other weekend visitation and spends a month during the summer with the child, don’t give up your right to claim, every year, the child on your taxes.
And that is just one mistake you can make when you try to rush through the divorce process. Spend the time now working through the financial issues. If you don’t, you may end up paying later.
6. Failing to take into consideration the long-term impact of your financial decisions. Do you know the difference between asset value and asset worth? No? Then learn because you don’t want to agree to something that could have a major negative impact later down the road.
When ending a marriage you get one opportunity to protect your financial future. If you aren’t sure when making divorce related decisions work with a financial analyst to help you determine any future financial impact a decision will have. You may agree to something now that seems like a positive financial decision in your favor to only realize 5 years later a different decision would have been better. Make wise choices for today, tomorrow and, years to come.
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