Common Money Mistakes in Divorce
For most people, the divorce process can seem like a never-ending battle. Many people describe it as a time of being frozen, numb, 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. This is easier said than done!
When you find a moment where you are clear-headed, here are a few of the most common money mistakes to look out for.
1. Underestimating post-divorce expenses.
You will need to create a financial affidavit that reflects your expenses AFTER the divorce. It is critical that you are realistic and don’t leave anything out. Just list all your expenses when you were married and create a mirror image of your expenses. Things like subscriptions are not cut in half because you are getting divorced. You may see a 10-25% reduction in some utilities, depending on where you plan on living. If you go from a house to an apartment, it may be as much as 50%. 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 like roof repairs. If you underestimate your expenses by $200 per month, that’s $2400 per year. Where are you going to get that extra money? When you are living on a single income this kind of mistake could lead you to agree to pay maintenance that you ultimately can’t afford. A Certified Divorce Financial Analyst™ (CDFA™) will help you scrub your affidavit for errors and make sure that you are looking at all things realistically.
2. Believing that your attorney will handle everything.
Your attorney is an expert in the law, not finances. Your attorney’s job is to ask you to fill out your financial affidavit and then presume you have accounted for everything. A good attorney will glance over it looking for any glaring errors but that’s about it. They do not know you or your lifestyle. The most commonly misvalued asset is a pension. In some cases, the pension is the most valuable asset in a marriage. Many attorneys accept a present value statement from a pension as the correct value to include as marital property. It is not. Not by a long shot. A CDFA™ can value it properly and make sure that tax ramifications are considered as well. Remember, this is your divorce, not your attorney’s. You cannot afford to overlook anything.
3. Not realizing tax implications.
The transfer of assets can be tricky. Not only do you have to figure out how much of certain assets will be transferred, but you will also need to understand the tax implications. There are tax implications for everything, some small and some large. Some will affect you today and others appear later, including at retirement. Knowing these factors, coupled with a tax analysis, can lead you to have more in your pocket at the end of the divorce process. A CDFA™ can assist you in this analysis.
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. For many attorneys, you pay for every email, phone call, letter, and meeting. Many couples, who do not want to be in the same room with each other, do work together to reduce the cost of the attorneys. 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. Does this make sense to you? Get over any anger and talk about what will work. The number one way to save on your divorce costs is to talk to each other and work out as much as possible. Even if you do not get a final solution, you are closer than you were to working out your differences. Working out 8 of 10 differences results in lower lawyer costs. Do not worry about what most people do. If you and your soon-to-be-ex agree, then it is final. The lawyer can give pros and cons about situations, yet the final decisions are yours. And as long as you are happy with your decisions, that is all that matters.
5. Letting your emotions make your decisions.
After interviewing over 25 divorcees, the number one regret was that they gave in too soon. They just wanted to “get it over with.” This is not the time to just 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! Many lawyers want to do a 50/50 split of assets. This is almost NEVER a truly equitable settlement. The decisions you make today will affect you for the rest of your life. So, try to put your emotions aside and talk to your spouse. Take your time and make sure you thoroughly understand what your post-divorce life will look like. Do not hesitate to get the right team together to ensure you are getting a complete and accurate picture of your finances. Once the divorce decree is filed there is no going back.
No one said it would be easy, however, you are the captain of your ship. You choose the direction to sail in, yet you need a crew to assist you in maintaining that direction. Make sure to get the right crew on your side.