Anyone who’s gone through a divorce can tell you that the process is emotionally draining and mentally exhausting, and that there are many money mistakes that can be made. It is in the midst of this process that you will be expected to go through your finances with a fine-tooth comb to ensure that your settlement agreement is fair and equitable. Easier said than done!
Here are a few of the most common money mistakes made when getting divorced.
- Underestimating post-divorce expenses. You will be asked to do a financial affidavit that reflects your expenses AFTER the divorce. It is critical that you are realistic and don’t leave anything out. This information will be used to determine if alimony is necessary or not. Did you include your health care deductibles? How about replacing the roof of your home next year? If you underestimate your expenses by $200 per month, that’s $2400 per year. Where are you going to get that extra money? If you’re the primary breadwinner and you could end up agreeing to pay alimony that you ultimately can’t afford. A Certified Divorce Financial Analyst™ will help you scrub your affidavit for errors and make sure that you don’t leave anything out.
- Believing that your attorney will handle everything. Your attorney is an expert in the law, not finances. You wouldn’t ask your doctor for advice about your car so why would you expect your attorney to be an expert in finances? He will ask you to fill out your financial affidavit and take your word for it that it is correct. A good attorney will glance over it looking for any glaring errors but that’s about it. The most commonly mis-valued asset is a pension. I often see attorneys accept a present value statement from a pension as the correct value to include as marital property. It’s not. Not by a long shot. A CDFA™ can value it properly and make sure that tax ramifications are considered as well.
- Not taking Tax Deductions. Very few people realize it but portions of your attorney or CDFA™ fees during divorce are tax deductible. Any fees for obtaining alimony and/or retirement funds during your divorce proceedings are tax deductible. Don’t forget that alimony is taxable to the recipient and tax deductible to the payer. This should be considered when the settlement is drafted.
- Letting attorneys do the talking for you. The more you and your spouse can work out by just communicating, the more money you’ll save. If you have your attorney relay information to the other spouse’s attorney, you’re racking up bills upwards of $600 an hour because you refuse to talk. Does this really make any sense to anyone? Get over any anger and talk about what will work. Today there are many different alternative dispute resolution methods that would be far more productive at a much lesser cost.
- Letting your emotions make your decisions. So many people going through divorce just want to “get it over with” and will often agree to settlements just to be done with it. This kind of thinking is why divorce so often leads to bankruptcy! A 50/50 split of assets is almost NEVER a truly equitable settlement. Take your time and make sure you thoroughly understand what your future will look like after your divorce and be sure to hire the right experts to help you.
Divorce is one of the most emotional experiences you will ever go through and also one of the most financially important. Arm yourself with facts and a team that can support you in making wise financial decisions so that you can avoid making costly money mistakes. You only have one chance to get it right and it could impact the rest of your life.