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Avoid These 9 Most Common Financial Mistakes People Make During a Divorce
When you’re faced with the possibility of a divorce, one of the biggest problems is the looming dread of financial ruin.
We hear statements like this very often from our concerned clients who are staring at a future without their current spouse by their side:
- “Will I need to move to a smaller house?”
- “Will I need to get a higher-paying job?”
- “Will I need to train for a new career?”
- “Will my standard of living be the same post-divorce?”
And these are very real concerns. For example, one survey of finances following divorce shows that divorced women have an average income drop of 45%. When you consult an experienced family law attorney, he or she will help you take advantage of important opportunities for a financially secure future after your divorce.
Here are the 9 most common financial mistakes you can make while divorcing, and of course, how to avoid them.
1. Not Knowing your marital finances.
One of the biggest mistakes you can make is not knowing the state of your marital finances. Sure, if you’re working, you know your income each month. However, if one partner handles paying all the bills each month, then the other partner may not know just how much money is going out and where it’s going. Some of our clients may not even have access to passwords to some of their joint online banking accounts or joint assets. You need to have a full understanding of your financial picture as a couple. Your attorney can advise you on what information you’ll need to provide him or her so that they can help you make an informed decision going forward.
2. Underestimating your current (and future) expenses.
Just as important, especially when one partner primarily handles the bills, is underestimating your expenses. When it comes to handling the financial side of your divorce, if you don’t know everything about your income and expenses, then your soon-to-be-ex has an advantage over you. It’s important that you know as much as possible about your current expenses and that you correctly calculate your expected future expenses, especially as it will be impacted by inflation.
Tip: If you’re considering divorce and don’t know the state of your finances, it could be in your best interests to consult an attorney first before talking to your spouse. This ensures that you have a better understanding of what financial information you’ll need to protect your interests.
3. Not considering tax implications.
One example of a tax implication that could affect you is related to the 2018 tax plan, where the spouse paying alimony no longer gets a tax deduction for the alimony. Consider also that many couples may consider liquidating investments such as 401ks and IRAs. If you do this, there could be large tax penalties. But the one-time income hike from these investments may put you in a higher tax bracket, meaning you’ll need to pay more in taxes. Your attorney may also refer you to an accountant to delve more into specific tax-related issues you may experience during a split.
4. Allowing emotional attachments to rule decisions.
Looking at your divorce settlement in emotional terms will impact your post-split finances. If you’re trying to “win-at-all-costs,” then you could end up fighting for sentimental property that’s not worth it. Sure, both sides may want to “win” the house in the settlement. But if you can’t afford to pay the mortgage or keep up with the house maintenance each month, then you may be letting your emotions pull you into a serious money drain. Agan, your attorney and accountant can help you take a realistic look at what you can and can’t afford as a single person.
5. Not knowing that equal division of assets isn’t always “fair.”
We’ve been taught all too often that life should be fair. But this isn’t the case in life, and it’s certainly not the case with divorces. It’s incredibly hard, if not impossible to put all of your assets into one big pot and expect a 50/50 split down to the penny. There will be a lot of give-and-take as you work through this difficult time period.
You must realize that the current value of an asset, such as a house, may change over time so that it gains value over the years. Conversely, the same is true for assets that depreciate. All of this will be taken into consideration when you and your ex are trying to come up with an equitable (not necessarily “fair”) split via your respective attorneys.
6. Not hiring the right professionals.
One of your best advantages in a divorce is the right legal advice. But when it comes to your finances, you also need to have qualified professionals helping you with your money. This can be everyone from stockbrokers to investment advisors who can steer you through this sticky situation. Make sure that whoever you hire is an expert in the area of divorce and how it impacts finances and taxes. Your attorney can often refer you to local professionals who are familiar with post-divorce financial issues and can give you sound recommendations.
7. Not understanding your responsibility in your marital debt.
You may be on the hook for an equitable split of your marital debt. If you have huge credit card debt or other loans that were taken out as a couple, so you’ll need to consult with your attorney and accountant to make sure these are handled properly. If you merely assume that your spouse will handle a loan and they default on it, your credit rating will be at risk. Again, you can consult with your team of pros to learn how to handle this situation should it arise.
8. Having no plan for long-term financial security.
When you’re considering a divorce, you always need to look toward the future after the settlement. This either means that you’ll need to ensure you’re provided for with adequate alimony and child support. On the flip side, you might be the spouse who’s paying alimony and/or child support. Delving into these payments on either side of the fence will set you up for better financial stability after your split.
9. Hiring the wrong attorney.
The right family law attorney will walk you through everything you need to know and what actions you need to take related to your finances after listening to you. The experienced family law attorneys at Smedley Law Group understand that you’re in one of the most difficult time periods of your life and will help you to think objectively in order to protect your assets and your financial future.
Contact the Experienced Family Law Attorneys at Smedley Law Group in Woodbury, NJ Today
If you’re thinking about filing for divorce or if your spouse has filed, you’ll need to speak with a qualified attorney. The New Jersey family law attorneys at Smedley Law Group represent clients throughout the state, including West Deptford, Woodbury Heights, Runnemede, and Westville. We understand how challenging this time can be for you, which is why we’ll fight hard to protect your interests, and the interests of your loved ones, throughout the legal process. Call us at (856) 251-0800 or fill out our confidential contact form to schedule a consultation. We have an office conveniently located at 750 Cooper Street, Woodbury, NJ 08096.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.