Divorce is one of the biggest financial events you can experience in your lifetime. It is therefore important to know the potential dangers of the divorce process, so you can avoid making serious financial errors.
Given the emotional distress of the divorce process, spouses may make the mistake of failing to properly prepare. It is important to understand the law surrounding marriage dissolution, and not doing so could lead to large financial expenses. Understanding all the terms of your divorce settlement will empower you to control your own financial affairs. For instance, the timing of the separation is important; perhaps your spouse is due to receive a bonus in the near future, in which case you shouldn’t separate until after they’ve received this, so you can receive your share. If you are the spouse awaiting a bonus it would be best not to wait. The internet provides lots of information regarding how to properly dissolve a marriage. You can even find loopholes that may help you process the divorce quickly and efficiently.
Relying on advice from family and friends
The advice you receive from your loved ones will almost certainly be misguided. They do not know the totality of your financial situation (salary, breakdown of your assets, how much you spend), nor the intricacies of divorce law that you need to understand. Ultimately, you are risking your real estate and savings when you ignore the help of a specialist and depend only on the opinion of your friends and family. Ensure that you hire a divorce lawyer who can provide the advice you need. You can also hire a divorce financial professional to help figure out the best settlement options for you. Rely on loved ones for emotional support.
Not keeping records
It is crucial that you keep good records during your divorce. The main reason for this is that your divorce team (attorney, divorce financial professional) needs reliable information in order to advise you and protect your interests. When you divorce, you must identify that assets that you and your spouse have accumulated and establish their value. Regardless of who was in charge of the finances during your marriage, its up to you to find the records. Obtaining copies of all financial records before the divorce process begins will be greatly beneficial. This includes, for instance, copies of tax returns, wills, trusts, financial statements, credit card statements, insurance policies, and banking information.
Receiving poor professional advice
You will definitely require professional advice during your divorce. Make sure you find a divorce lawyer who can provide excellent advice. Finding the cheapest lawyer in your area is not the priority here you need an experienced professional whom you can trust. Contact a forensic accountant if you think there may be hidden assets. Hire a divorce financial adviser who can help determine the best settlement options for you. Though this may all be costly, it is not worth skimping on hiring professional help during one of the most financially crucial experiences of your life.
Overlooking hidden assets
Some assets are easy to miss, even if your spouse is not intentionally trying to hide them. Some common examples include: credit card points, time-shares, golf club memberships, and health savings accounts. Small assets, such as frequent flyer points and vacation pay, can add up. Even if you don’t want an asset, you can use it and trade for something you do want. Your spouse may attempt to hide assets. Even if s/he does, do not try to hide assets yourself. You might be caught out and then have to face the wrath of both your ex-spouse and the judge. Telling the truth and revealing all your assets will make for a cheaper and more straightforward divorce process.
Not developing a career
In the face of divorce or death, a lack of financial independence can drastically affect your future. If you are divorcing your spouse, this is a good time to consider your future financial life, and whether you need to further your education or skills. If you have children and are seeking custody of them, you will need to be able to support them financially and make your own income. Not being a part of the workforce will therefore affect you in the long term.
Seeking the help of a qualified divorce mediator will help you financially in the long run. The mediator is an unbiased neutral third party who weighs the issues to be discussed and helps guide the discussion and process. The main areas of discussion are property distribution, child support, alimony, taxes, and retirement. If you leave these issues only for the judge to determine, this may put either you or your spouse in a bad position. Mediation changes the situation in that the expert tries to find a solution that will satisfy the interests of both spouses.
Living in a house you cant afford
Many consider their home as a place of stability and protection. But it is important to note that after the dissolution of a marriage, financial situations often change for the worse. If earlier income was at least from two sources, now only one of you will have to maintain the house. If your home is too costly to maintain on your own, you should rather sell it and find something more affordable. A perk of this is that, if you have owned your house for quite a few years, its probably increased in value. You may be better off selling the house while you and your spouse still own it together; this way you can each claim capital gain exclusion.
Not fighting for what is yours
During your divorce, you need to recognise and fight for what belongs to you according to the law. Many spouses avoid these pursuits because they fear they will ruin their relationship with their ex-spouse. A friendly line of communication is important, especially if you have children. However, you must not refuse alimony or accept a small part of the property simply to avoid offending your ex. During your divorce, whether or not you fight for what you’re entitled to will impact your financial stability for the future. Reconciling with your spouse should be second to that.
See related resource: How to prepare for divorce.