Building a life with another person comes with its own risks. Living on two incomes provides a higher standard of living, and many women will often put a hold on their career if they have children, which can cause a major gap in their employment.
When it comes time to get divorced, you’re not just making your separation from your husband or wife official – you’re making a financial decision, too.
Divorcees often worry about the house and kids, and they pay less attention to their finances. This leads to unnecessary hardships in the future. You can avoid costly financial mistakes during a divorce if you know what mistakes others have made before you.
Seven of the most common mistakes divorcees make are:
1. Not Recognizing the I.R.S. As an Enemy
You and your ex both have a common enemy: the Internal Revenue Service. In the ideal world, both husband and wife would sit down with a financial planner or accountant that would help them minimize the amount of taxes they’ll need to pay following a divorce.
Both parties are liable for paying taxes.
Audits on joint returns can also be imposed. If you have complex tax concerns, an attorney may be the best person to consult.
2. Failing to Make an Accurate Budget for Temporary Alimony
Couples have a way of not making a budget when enough money is flowing in. This may work well until you realize that you didn’t account for certain items when making a budget during divorce proceedings.
A financial professional can help you make an accurate budget that will be used when granting temporary alimony.
Underestimating living expenses may mean that you’ll fall behind on your bills. You’ll also harm your credit as a result.
3. Consulting with Your Divorce Lawyer Too Much
You need to consult with your divorce lawyer on law issues. Your lawyer will be there to hear your side of the story, but they’ll be charging you by the hour, which means you may be wasting money if you’re talking to them about your emotional problems.
Divorces are emotional, and it’s going to be one of the hardest times in your life.
If you need help coping emotionally, it’s better to see a licensed therapist to discuss your emotions than a lawyer because of the difference in price. Using multiple professionals to your advantage during a divorce may provide you with better overall counsel that saves you money in the long-term.
4. Rushing to Sign a Settlement
Settlements can be very complex, and after you sign on the dotted line, you’ve agreed to all of the terms found within the settlement. This isn’t a document that a person should ever rush to sign or be pressured into signing.
It’s common to want to put the divorce behind you, but signing a settlement without doing your due diligence can lead to a major financial mistake.
There’s a lot that needs to be considered when evaluating a divorce settlement:
- Retirement plans
- Medical expenses
- Health insurance costs
- Living expenses
- Child support
- Child-related expenses
And these are just some of the items that will determine how your lifestyle will be following a divorce. You can’t rush through the signing of a settlement, and it’s imperative to work with a financial planner and/or attorney to devise a realistic analysis of your finances following divorce.
You also want to be fearful of any divorce settlement that is too good to be true.
If one spouse is heavily favored in the divorce, this can lead to a future default. Upfront payments are a necessity as well as a review of a settlement to try and secure all of the assets listed in the settlement.
5. Failing to Update Estate Documents
Do you remember all of those estate documents you signed when you were both happily married? They’ll need to be updated, or you may be leaving your former spouse a large portion of your estate.
The changes you plan on making should be discussed with an estate planning attorney, but a few documents that will need updating, if they exist, are:
- Retirement accounts
- Insurance accounts
- Will (s)
And if you have your spouse in any form of a trust, you’ll want to update these documents, too. If your ex is the beneficiary of any of these estate planning vehicles, it’s essential to change these documents as soon as possible, or your spouse will remain the beneficiary in the eyes of the law.
6. Failing to Make a Post-Divorce Financial Plan
Your income is likely cut in half, or at least greatly lessened following a divorce. Life will change after a divorce, and much of these changes are financial in nature. A post-divorce financial plan is essential so that you can ensure you have enough money to pay all of your bills and financial obligations.
The cost of two households (your household and your ex’s household) will be far costlier than living under one roof.
Proper financial planning will allow you to update and prioritize your financial goals so that you can pay your bills every month. A sound plan may seem like a trivial thing, but without one in place, you may have a hard time adjusting to your new life of being single – and potentially a single parent.
7. Allowing Yourself to be a Financial Victim
You may be a financial victim in a divorce, and this can happen in a variety of ways. In the ideal world, every divorce will end amicably, but this simply isn’t the reality for many divorced couples.
If you have an idea that he or she is going to file a divorce petition, you need to take action.
You need to have information about your:
- Savings and retirement accounts
The more information that you have about your finances and assets, the better. It’s not uncommon for one spouse to handle all of the finances, but this is dangerous when getting divorced.
Your spouse may try and hide money, liquidate assets or bully you to sign a settlement. Legal forensic experts can help you if you suspect that your spouse is trying to hide assets from you.
The Micklin Law Group, LLC is a New Jersey law firm specializing in family law and estates. Attorney Brad Micklin was recently named to The National Advocates list of Top 100 attorneys from each state. Brad has a special expertise in working with high asset divorce. You can read more on this topic by visiting our divorce blog. To set up a consultation, call 973-562-0100.