Avoid Making These Money Mistakes in Divorce
It is easy to make money mistakes in the divorce process because it is emotionally draining and mentally exhausting for most people. It is often described as a time of feeling frozen, numb, or moving in slow motion. Despite the emotional and mental trauma, it's crucial to meticulously examine your finances to ensure a fair and equitable settlement agreement. With "divorce brain," this is easier said than done! Even if you feel clear-headed, make sure you watch out for some of the most common money mistakes in divorce:
1. Underestimating Post-Divorce Expenses
You will need to complete a financial affidavit reflecting your expenses after the divorce. It’s critical to be realistic and thorough. This affidavit helps determine if spousal maintenance is necessary. Include everything from healthcare deductibles to anticipated home repairs. Underestimating expenses by even $200 per month means an extra $2400 per year. This mistake can lead to agreeing to pay maintenance you ultimately can't afford. A Certified Divorce Financial Analyst (CDFA®) can help you review your affidavit for errors and omissions.
2. Thinking Hiring Attorneys Will Get You a Better Settlement
Direct communication with your spouse can you save money. When attorneys get involved information between spouses gets lost and complicated, it can cost upwards of $800 per hour. It's more cost-effective to hire a Mediator who is also a Certified Divorce Financial Analyst to facilitate financial and settlement discussions so you both can have best outcomes.
3. Not Taking Into Account Tax Implications
Divorce can have significant tax implications for both spouses and are an often overlooked factor. A CDFA® is familiar with tax issues that apply to divorce.
4. Letting Emotions Drive Decisions
Many people going through divorce just want to “get it over with,” but hastily agreeing to a settlement can lead to financial ruin. A 50/50 split of assets is rarely truly equitable. It's important to set emotions aside, communicate with your spouse, and take the time to understand what your future will look like post-divorce. Hiring the right experts to assist you is crucial for a fair settlement.
5. If You Have to Hire an Attorney - Believing They Will Handle Everything
Your attorney is a legal expert, not a financial expert. They will ask you to fill out your financial affidavit and take your word that it is correct. While they might glance over it for glaring errors, they are not equipped to identify financial inaccuracies. The most commonly misvalue asset is a pension, which can be a significant marital asset. Attorneys might accept a present value statement of a pension as accurate when it’s often not. A CDFA® can properly value it and consider tax implications.
Avoiding these common money mistakes can help ensure a more secure financial future after divorce.