15 Divorce Financial Pitfalls

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After divorce, a number of variables combine to reduce women’s standard of life. Child support may not be sufficient to pay the full costs of child rearing, and she may have missed out on many years of job advancement, making it difficult for her to rebound following divorce.

Divorce comes in a period of radical transformation. It’s also your life’s most significant financial event. You don’t know what you don’t know, to put it bluntly. That is why it is critical to educate yourself so that you may make informed financial decisions before to, during, and after your divorce.

After a divorce, a number of factors conspire to reduce women’s living standards. Child support may not be sufficient to pay the full costs of child raising, and she may have missed out on many years of professional advancement, making it more difficult for her to get back on her feet following a divorce.

The following are the 15 Divorce Financial Pitfalls

1. Insufficient Funds

As soon as the divorce procedure begins, expenses will start to balloon. Legal fees, court charges, therapy bills, new living expenses, and a slew of additional expenditures will deplete your savings. Money that could previously just sustain one household now has to support two. If you’re thinking about getting divorced, now is the time to start saving.

2. Keeping No Records

Document, document, document is the first rule of divorce. For a variety of reasons, it’s vital that you keep solid records. Most crucial, in order to counsel you and safeguard your interests; your divorce team (legal, divorce financial planner) requires solid information.

3. Turning into a Financial Victim

The worst financial error divorcing couples can make is remaining in the dark. When it comes time to resolve the financial difficulties in your divorce, your spouse will have an unfair edge over you if your spouse has always handled all of the financial choices in your home and you don’t have any information about you and your spouse’s income and assets.

If you believe your spouse is preparing a divorce, gather as much information as possible as soon as possible. Make copies of significant financial documents like as account statements and any other information pertaining to your married lifestyle. If you feel your spouse is planning to liquidate or retitle marital assets without your permission, inform the asset or property’s owner in writing and seek a court restraining order. Cash held in joint checking and brokerage accounts, as well as the cash value of life insurance policies, should be avoided. You may need to retain legal and forensic accounting professionals to assist you find and appraise assets if your spouse utilises or moves assets without your knowledge.

4. Trying to go through the process as quickly as possible

Many divorcing spouses like to get their soon-to-be-ex out of their life as soon as possible. This is especially true when there is a history of physical, emotional, or financial abuse. The issue with a hasty divorce is that it might result in an unequal wealth split for the more vulnerable spouse. One side may take advantage of the other’s desire to end the relationship quickly and persuade them to go with less than they deserve and without the support they require to start over.

Marriage brings up a complicated legal and logistical jumble of assets that can be tough to figure out. After you’ve ensured your safety, you should seek expert assistance in locating and accurately valuing all of your assets and responsibilities.

5. Too Little Preparation

Divorce is a long, complicated process that requires careful preparation. Before you jump in head first, consult with legal and financial professionals and read books about the subject. Think about the timing of the separation: Is your husband due to a bonus or other windfall in the near future? Don’t separate until after it arrives, so it will be community property. Think about Social Security: If you’ve been married nine years, you might want to stick out the last year, so you can collect on your ex’s earnings record. Finally, don’t just pack your bags, load up the kids, and drive away in a car that needs four new tires. Before you separate, buy the clothes you’ll need, perform maintenance on the car, and fix the kids’ teeth.

6. Making a Hasty Transition to the Bargaining Stage

You can’t begin negotiating unless you’ve established clear goals and priorities, as well as a thorough comprehension of the financial situation. Begin by compiling and arranging your financial data. Before you start negotiating, you should have a complete marital balance sheet, budget, and income summary.

When you negotiate too quickly, it nearly always backfires. Once you have additional facts, you or your spouse may wish to pull out of any unwritten commitments. When that happens, the other person begins to doubt your ability to follow your promises.

7. Child support isn’t being considered Long-Term

When a divorced spouse has children, ensuring that the children will have the financial (and emotional) assistance they require until they reach maturity is a significant aspect of the divorce settlement. Kid support is calculated using a variety of parameters, including each parent’s income, the amount of time the child will spend with each parent, and the child’s age.

When considering how much child support to seek, it’s a mistake to merely consider normal, everyday costs. Remember to account for future school costs, medical costs and extracurricular costs. A life insurance policy that pays alimony and child support if the supporting ex-spouse dies unexpectedly might be a wise investment.

8. Keeping a Home that you are unable to Afford

Choosing what to do with your home might be a difficult decision. Many individuals consider their home to be a safe haven for both their children and themselves.

Make sure you’re not overextending yourself. To ensure that you can afford to maintain the house, prepare a list of all your housing bills, including mortgage payments, property taxes, homeowner’s insurance, utilities, and maintenance charges.

9. Marital Property Refinancing

If you decide that one spouse will live in the marital home but the mortgage is in both spouses’ names, the refinancing terms in the divorce agreement must be carefully drafted to guarantee that the spouse who will not stay in the property is removed from the mortgage. Before signing your agreement, speak with a mortgage banker to ensure that both you and your spouse are aware of the criteria and timing for refinancing the mortgage. You should also specify what happens if the deadline is not fulfilled or if the spouse who lives in the house fails to make payments, as well as who is responsible for any losses or accidents that occur on the property.

10. Pension benefits shouldn’t be Ignored

It’s more complex to divide assets such as a couple’s pension plan than simply announcing they’ll be split evenly or that each spouse will maintain their own pension. You must choose whether to divide the plan into a shared or distinct interest. You should also specify how survivor benefits, early retirement alternatives, and post-retirement cost of living adjustments (COLAs) will be distributed among the spouses.

11. Failure to consider the Tax Implications

Should you pay alimony on a monthly or lump-sum basis? Should you open a brokerage account or open a retirement account? Is it better to keep or sell your home right now? Until the house is sold, who should pay the mortgage? When making these selections, keep in mind the tax implications of divorce. To discover if you are getting the greatest price, you may need to see an accountant. If you believe your previous joint tax returns may have omitted income or inflated deductions, you should seek an indemnity clause to protect yourself if the IRS decides to audit you.

12. Putting Money and Emotion together

It’s easy to mistake your emotions with the facts at this tough moment. Try to be as objective and professional as possible. Instead of seeing your attorney as a friend or confidante, think of him or her as a paid professional. When your sadness overwhelms you, go home or to a friend’s house rather than to your attorney’s office, where you’ll be charged at his standard hourly cost. Make property division decisions for your own long-term benefit, not for vengeance. Declaring war on your ex isn’t going to make you happy. Make every attempt to end the divorce with as little animosity as possible. Only the lawyers gain from a tumultuous divorce.

13. Failure to prepare for the Worst-Case Scenario

Prepare yourself psychologically for the worst that might happen during your divorce. What will you do if one of your children becomes ill? If you have to live with your parents, what would you do? If your divorce drags on for years and you lose all you own? If your ex marries again within two weeks, goes to Tahiti, and/or refuses to pay child support, what should you do? Prepare for the worst-case scenario so that what really occurs appears to be a breeze. Don’t freak out and allow your anxieties take over your life. Face them and reclaim your power.

14. Not weighing the Financial Implications

When assessing a settlement deal, there are two approaches to consider. 1) Is there anything I’m legally entitled to? 2) How would this affect my financial situation?

The majority of divorced people make the mistake of concentrating solely on the former. This is an area where your divorce lawyer can assist you. In the grand scheme of things, the latter is actually just as significant as the former. The “Can I Settle” analysis is what I like to call it. If you know you’ll be okay financially, you’ll feel lot more confident in saying “yes.”

15. You’re not doing a Cost-Benefit Analysis on your Choices

The smart money is betting on the underdog. It’s one of my favourite divorce negotiating proverbs. To be clear, I’m not recommending that you accept anything your husband offers as a “fair” settlement. However, you must consider the expenditures. Make no rash judgments or attempt to exploit your divorce to punish your spouse for their wrongdoings. You’ll wind up hurting your financial account in the process, trust me.

Consult an attorney who can explain the possibility of various outcomes if you go to court, as well as the expected expense of battling those problems. Be cautious to consider the emotional toll that litigation might have on you and your family’s mental health. Then work with a Certified Divorce Financial Analyst to figure out what all of this means financially for you.

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