4 Common Money Mistakes in Divorce
Most people know the divorce process can be emotionally draining and mentally exhausting. I’ve heard many people describe it as feeling like they are in a fog or moving in slow motion. Despite that emotional and mental trauma, you will be expected to go through your finances with a fine-tooth comb to ensure that your settlement agreement is fair and equitable. With divorce brain, that’s easier said than done!
Even if you feel like you are clear-headed, here are a few of the most common money mistakes to look out for when getting divorced.
1.) Underestimating post-divorce expenses.
You will be asked to do a financial affidavit that reflects your expenses AFTER the divorce. It is critical that you are realistic but also critical that you don’t leave anything out. This information will be used to determine if spousal maintenance is necessary or not. You must be sure to include everything from your health care deductibles to anticipated home repair charges for the roof you need to replace next year. If you underestimate your expenses by $200 per month, that’s $2400 per year. That extra money will have to come from somewhere. When you’re the primary breadwinner this mistake could lead you to agree to pay maintenance that you ultimately can’t afford. A Certified Divorce Financial Analyst® professional can help you scrub your affidavit for errors and make sure that you don’t leave anything out.
2.) Believing that your attorney will handle everything.
Your attorney is an expert in the law, not finances. Would you ask your doctor for advice about your car? No, so why would you expect your attorney to be an expert about money? The attorney’s job is to ask you to fill out your financial affidavit and take your word for it that it is correct. A good attorney will glance over it looking for any glaring errors but that’s about it. The most commonly miss-valued asset is a pension. And sometimes, that same misvalued pension is the most valuable asset in a marriage. I often see attorneys accept a present value statement from a pension as the correct value to include as marital property. It’s not. Not by a long shot. A CDFA practitioner can value it properly and make sure that tax implications are also considered.
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3. Not taking Tax Deductions.
Not everyone realizes that portions of your attorney or CDFA fees during divorce are tax deductible. In fact, very few people do. Any fees for obtaining alimony and/or retirement funds during your divorce proceedings are tax deductible. This means your QDRO fees are deductible.
4. Letting attorneys do the talking for you.
The more you and your spouse can work out by just communicating, the more money you’ll save. I’ve seen many couples that could not bear to be in the same room, but consider the cost. If you have your attorney relay information to the other spouse’s attorney, you’re racking up bills upwards of $600 an hour because you refuse to talk. This makes sense to no one. Get over any anger and talk about what will work.
5. Letting your emotions make your decisions.
A common theme among people going through divorce is they just want to “get it over with.” This is the wrong time to throw your hands up and agree to a settlement just to be done with it. This kind of thinking is why divorce so often leads to bankruptcy! A 50/50 split of assets is almost NEVER a truly equitable settlement. So, put the emotions aside, talk to your spouse. Take your time and make sure you thoroughly understand what your future will look like after your divorce and be sure to hire the right experts to help you.
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At Smarter Divorce Solutions, we help you with creative solutions and sound financial decisions surrounding the dissolution of your marriage, because we know that in the end you will still be part of the same family. Happy Anniversary to those that made it, and a kinder, gentler and more affordable divorce to those that didn’t.