Avoid Making These 3 Divorce Settlement Mistakes
By Suzanne Chambers-Yates - September 12, 2024
The decisions you make during your divorce will impact your financial future. It is important to enlist professionals who will give you accurate and straight forward information. Some divorce professionals find it difficult giving you information you may not want to hear, and at times don’t tell it like it is. This can lead you to easily avoid making mistakes which create issues for your financial future.
I believe in telling it like it is. Your household income as a couple will now support two households, so yes, things will change. Let me guide you through that change with some straightforward advice. Here are a few things that I see repeatedly when it comes to divorce. Settlements are agreed to (and sometimes even ordered by a judge!) then the people come to me post-divorce to mediate, or through their attorney trying to resolve these issues. I read through their decree and just shake my head. Please – don’t make these mistakes!!
Mistake #1: Keeping a House You Can’t Afford
I understand people can get emotionally tied to the family home and really want to stay. Before you even consider this option, you must do a budget. I also strongly suggest you meet with a Certified Divorce Financial Analyst who can assist you with a cash-flow report showing your income less expenses, at your new tax filing status to see if you can afford the house. I have witnessed where one or two years down the road the spouse who “won the house” has run out of cash and realized that they can’t sell a window to put food on the table, they can’t refinance because now they don’t have enough income, and they have no choice but to sell. The selling costs are about 6% of the sale – all of which would have been split 50/50 with their ex if they had sold as part of the divorce. This divorce settlement mistake is avoidable and one of the most financially devastating. Completely avoidable.
Mistake #2: Misunderstanding Pension Splits
Divorce decrees often state that pensions are to be split 50/50, but few people understand what this really means. When do you start collecting? Is there a lump-sum option? Will there be cost-of-living adjustments? What happens if you or your spouse dies? Will it keep paying? Will it double? When I ask these questions, no one has ANY IDEA what the answers are? Really? How can you possibly agree to a settlement without understanding something so crucial to your retirement? Don’t expect attorneys to provide these answers—consult with a Certified Divorce Financial Analyst to avoid costly misunderstandings and mistakes before signing your divorce settlement.
Mistake #3: Ignoring Tax Implications
The IRS (Internal Revenue Service) will always find a way into your pockets. Never agree to a settlement without understanding the tax implications! Often, the tax burden on one half of the marital assets is significantly higher than the other’s, making your “half” worth much less than you anticipated. Don’t rely on your attorney to handle this—they are not accountants or financial advisors and a lot of them won’t bother to warn you of that. Buyer beware. Always consult with a financial professional to understand the full picture before you settle your divorce.
Bring in the right experts for your divorce to make sure that you have all of the information you need to make the best decisions you can! Don’t go this alone. As we say at Divorce Concierge, “There are no do-overs with divorce!” Let me help.