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avoiding financial mistakes in divorce

What are Some Common Financial Mistakes Made During a Divorce?

A divorce is usually a time of great instability. Almost everyone involved in the process is said to go through a tremendous personal change to come out as a different person at the other end.

Amid the emotional crisis and the ensuing paperwork, it is customary to forget to take care of some crucial details, especially when it comes to finances.

Throughout the marriage, you and your spouse must have made financial investments together. It is not always obvious how to share these assets equitably.

Decisions made in the heat of the moment without considering your future income and expenditure can have lasting implications. Here are some of the most common financial mistakes spouses make during a divorce, and how to avoid them. It is best to discuss these with a qualified professional such as a divorce attorney for detailed info.

Not Keeping an Eye on Joint & Individual Finances

This is not a healthy marital practice. Always calculate how much you and your spouse have invested financially in the marriage by all parameters such as a personal source of income, joint expenditure, investments, and so on.

If you let the other person handle this, it will put you at an unfair advantage. In a worst-case scenario, you might miss out on calculating assets that your spouse has kept hidden, which is illegal.

You are entitled to your ex’s employer-funded pensions and investments. Work benefits, company shares, and 401(k)s are all subject to division. Remember to include your spouse’s investments when predicting and calculating your earnings from the divorce.

Underestimating your Expenditure Post-divorce

Since you’ve yet to experience a life without your partner, you might overlook aspects such as a fall in overall income and an increase in personal spending after divorce. Make sure you calculate these factors beforehand, preferably with the help of a divorce lawyer.

Your calculations should include the current standard of living, future inflation, and insurance premiums. Both you and your spouse should also consider your cost of living during the divorce period itself, which sometimes takes months from the date of separation.

Assuming Equal Division is Fair by Default

Equal doesn’t always mean equitable. The value of some assets, such as property or bonds, can increase more than their market value in time. Hence, fair sharing of property should be based on its expected monetary value.

Beth W. Barbosa, divorce attorney at a prominent divorce and family law firm in Edina, Minnesota, can assist in this breakdown of assets and their value.

Splitting the house itself can be a tricky one. If you choose to keep the house for emotional reasons, know that financial returns on the house vary greatly depending on external circumstances. What seemed like a good idea might end up costing you a lot more in terms of the mortgage, maintenance, and property tax.

Not Filing Proper Paperwork

A Qualified Domestic Relations Order (QDRO) is legal proof of how you and your spouse would divide a contribution plan, such as a 401(k), 403(b), 457 plans, or a pension plan. Even your spouse’s employer is legally bound to pay you the share agreed upon in the document. Don’t forget to fill it up at the time of the settlement.

Ignoring Tax Liabilities, Debts

Certain assets come with tax liabilities after settlement. For example, the alimony tax distributed over time might be more than the tax deducted on a lump sum. Always go by the value of an investment after removing tax liability. The same goes for debts such as credit card debt and bank loans. Obligations taken together during the marriage should be considered while sharing.

Seeking Bad Legal Counsel

Choosing the right divorce attorney can save you from a lot of stress and burden, but not every type of lawyer suits everyone. Find a lawyer who understands your needs. Someone not too aggressive to cause further friction between parties. A lawyer who can find a resolution in the shortest time possible, thereby reducing the cost of litigation fees. A good lawyer can also mediate a compromise between parties without involving the courts, saving a lot of time and money.

Author Bio: Beth W. Barbosa  is a family law attorney in Edina, Minnesota who represents family law clients in the seven-county metro area. With over 20 years of high-profile experience as a family law attorney, Beth W. Barbosa focuses on high-asset divorces, gray divorces, child custody, co-parenting, and more.

Beth W. Barbosa is a knowledgeable  estate planning lawyer to guide you through this complicated process. Beth aims to be there for her clients to take some of the stress and confusion out of family law proceedings.

With over 20 years of experience as a divorce attorney, Beth Barbosa can provide you with reliable, unique, and innovative solutions to your family law issues. Regardless of the details of a specific case, Beth ensures that you and your spouse move forward with grace and dignity after the proceeding’s conclusion. Resolve your financial issues with Beth today and take time to heal without worry.

 

 

Avoiding Financial Mistakes in Divorce

The way assets are split during a divorce can affect one’s financial future. One pitfall is not taking a careful look at what is best in your particular situation. Consider hiring an independent financial advisor to go over the asset inventory and get a balance between cash and retirement investments. One splits the total value of assets, not necessarily the individual ones themselves.

1. Determine which investments have a greater potential for a higher yield. A money market account is safe but will not accumulate as much interest as a more diversified portfolio. I am earning 5% or more on my intermediate bond index. My investment with various stocks is more volatile, although long-term gains will hopefully make up for occasional losses. A financial expert is not working on commission and can give some guidance on which types of investments are best to receive in your divorce. I made the mistake of not taking more in a retirement account and am trying to catch up with that now. Keep in mind that investments have different tax consequences. Discover if an investment will be taxed at a later date and at what rate. Other investments may be tax-free. When there is much wealth to be split, have a tax expert working with the financial advisor right from the start.

2. A receiver is taxed for alimony, but not for child support. The payor gets a tax break for paying alimony, but not for child support. If your children are young, consider taking the bulk of your maintenance as child support, so you get to keep it as opposed to paying taxes on it. If you have teenagers and your alimony continues after child support ends, it may be better to take the bulk of it as alimony (I did this option).

3. Property is not equal. If there are some choices, a real estate agent or expert in this field can guide you. Some land or houses may be on an upward trend and others may be losing value. One divorced woman moved into a house with her daughter and was told that a small road might be built beyond the back yard. That was an understatement and they moved after a major freeway was constructed instead. In another case, a divorcee bought a nice house in a quiet, well-kept suburb. A few years later a high-density apartment complex was added nearby, resulting in a rash of break-ins and other crimes. There was a mass exodus from a previously peaceful neighborhood. Do your research to ensure getting a particular piece of property is a good idea.    divorcedmoms.com/articles/5-financial-pitfalls-of-divorce-and-how-to-avoid-them