The divorce process can be stressful. People will often make mistakes when it comes to financial matters that can have lifetime consequences in the divorce process. We outline the top ten financial mistakes people make during a divorce.
- Not educating themselves on the finances – sometimes one spouse manages all the finances, and the other spouse is completely in the dark. This becomes problematic and stressful for the non-financial spouse. It is imperative that the spouse not managing the finances educates themselves on financial matters. This is often done by hiring a Certified Divorce Financial Analyst who can help prepare income and expense analysis before, during, and after the pending divorce.
- Treating all assets the same – The fact of the matter is that not all assets are the same. Some assets have tax consequences. For example, if you split all your assets 50/50 and some have tax consequences, then you will not get a 50/50 split. It is important to consult a tax advisor when splitting assets.
- Not updating financial documents – All your financial documents need to be updated, including beneficiaries on life insurance policies, annuities, and other financial documents. Make sure these designations reflect your post-divorce wishes.
- Not accurately accounting for expenses – Life after divorce may look much different than before. People often underestimate their operating expenses going forward and therefore may have trouble meeting them. There will be many changes and people often overlook housing and healthcare expenses and other lifestyle changes.
- Getting rid of joint debt – Make you consolidate and get rid of any joint debt. If payments are made accidentally or on purpose, this could cause credit problems down the road. Clear planning and making sure these debts are paid is crucial to reflect post-divorce credit worthiness.
- Not having assets appraised – Some couples have an interest in business, expensive artwork or jewelry and never have it appraised. Especially small businesses. There are professionals who value these items and are experts in their field.
- Not searching for hidden assets – spouses sometimes have trusts, overseas accounts, or transfer assets to family and/or friends. Forensic accountants can assist in finding these hidden assets.
- Not properly allocating marital assets – When couples divorce, they go from being one household to two households. The asset split much be fair to each spouse in both the terms of cash flow today and retirement assets tomorrow. Having too much of one or the other can cause financial hardship.
- Ignoring credit – establishing individual credit is important, especially after divorce, if you plan to buy a house or a car and have no credit
- Not using professionals – There are numerous financial professionals who can assist through the maze of financial implications in a divorce. These professionals can be hired by either side or can be hired by both couples as a joint expert. The money spent on peace of mind is worth it.
Each divorce is unique as is each financial situation. Divorce is a financial break up also, not planning and not seeking financial advice from an expert can be a financial disaster. Financial decisions should not be made on emotion but should be well thought out with the assistance of a financial and tax expert.
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