Getting a divorce is traumatizing regardless of whether you and your partner are parting ways in a quarrelsome or cordial manner. Because you’re emotional during the divorce, it’s easy to forget the subsequent financial implications.
Mistakes To Avoid When Preparing For A Divorce
After all, you’re balancing many different things, from creating a game plan for a shift in your lifestyle to your current social and family dynamics.
With their mind already preoccupied with a lot of things, many people end up making serious financial mistakes that they end up regretting years later. That’s something you don’t want to do as divorce is quite expensive. To ensure that you don’t commit the same errors, here’s a guide on the most common financial mistakes you should steer clear of when preparing for divorce:
Getting Advice From Family And Friends
Divorce is a difficult process to go through, so receiving emotional support from your family and friends is essential. But while your loved ones have the best intentions, you shouldn’t take their advice before you hire a divorce lawyer. This is because much of what they’ll tell you is likely misguided. After all, they don’t have adequate knowledge when it comes to law and finance. This means they can’t offer your advice on numerous aspects such as your financial standing and your state’s divorce law.
Therefore, you shouldn’t take any advice given by your family and friends, and only lean on them to get much-needed emotional support.
Not Knowing Your Household Finances Before The Divorce
See to it that you have easy access to all the essential marital assets and household information when preparing for divorce. This way, you’ll be fully aware of your finances when heading into the divorce settlement and be in a better position to negotiate for an improved deal. The crucial information about your and your partner’s finances include the following:
- Income
- Investment accounts
- Monthly overhead
- Outstanding tax liabilities and debts
- Locations and balances of retirement accounts
- Balance in savings and checking accounts
Other than knowing those financial details, make sure you have every account’s login credentials and administrative access. You also need to know your spouse’s net worth, your net worth, and your combined net worth as a couple. Provide this information to your attorney so they can gauge your financial position as a couple before your divorce. Be as comprehensive and honest with your lawyer as possible in preparation for spousal support negotiations. This way, you protect yourself from losing money in the future.
Fighting To Keep A Marital Home You Cannot Afford
Giving up the marital home is often quite challenging due to the emotional attachment you’ve developed after years of living in it. The home signifies a sense of stability both for you and your children as well. But while parting with your house might be hard, you shouldn’t make the mistake of overextending yourself. This means creating a list of your household expenses such as:
- Homeowner’s insurance
- Property taxes
- Mortgage payments
- Maintenance costs
- Utilities
After calculating all those costs, you’ll be able to assess whether keeping the house falls within your budget. It’s best to consult a real estate lawyer or mortgage broker before deciding what to do with your marital home. With their advice, you’ll know if it’s best to sell your home and go for a smaller and cheaper property.
Not Accepting Your Financial Reality
After the divorce, you’ll hear lots of discussions on the need to maintain your lifestyle. This is the purpose of spousal support in some states: to ensure that one’s living standards remain the same as before the divorce. But in reality, achieving this isn’t always possible as there are now two separate households, leading to a considerable increase in expenses.
Therefore, you shouldn’t bow to external pressure and focus on maintaining your living standards but rather pay attention to financial security. It’s advisable to cut back on your monthly expenses and make your new lifestyle a lot simpler. You also shouldn’t be overly concerned about how this may impact your children as they’re more understanding and flexible than you think.
Not Keeping Important Records
Paperwork is your friend prior to a divorce, so you must always document everything. This is vital as such records will help your divorce team—which is made up of your divorce financial planner, mortgage lender, and attorney—assess your financial details. As a result, they’ll have dependable and accurate information they can use to best advise you on how to safeguard your interests. It’ll also be easier to prove to the court that you deserve child support or alimony with proper paperwork.
Forgetting Tax Implications
After a divorce, everything about your tax situation changes, including:
- Claiming dependents
- Filing as single
- Understating the impact of alimony on your tax position
- Shifting tax brackets
These, together with the cash you receive from the sale of a shared asset such as your spouse’s marital home, are things to consider as they affect your tax scenario. But getting a grasp of such matters can be overwhelming, so make sure to hire an accountant or a financial planner. With their guidance, it’ll be easier to forecast your tax situation, which will allow you to make prudent decisions in the long run.
Forgetting About Shared Debts
If you and your spouse have taken out a joint loan, the creditor holds each of you equally responsible for paying off the debt. Many divorcing couples often make this mistake by assuming it’s only the responsibility of the other to settle the outstanding loan. However, the lender doesn’t see it that way when it comes to demanding payment, even when the divorce agreement states that one party is required to settle the entire debt.
The best way to dodge such an issue altogether is to settle all of your shared debts before the divorce process can be completed. This lets you avoid the situation where each of you assumes that it’s the other person’s responsibility to settle the credit. When this happens, the lender eventually comes after the two of you to demand payment, thereby affecting your credit score.
Takeaway – Preparing For A Divorce
The divorce process is often long and complex. Due to this, it’s easy to make serious mistakes that end up having a detrimental impact on your finances much later, even after the divorce is finalized.