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Ten Financial Potholes to Avoid in Divorce

Ten Financial Potholes to Avoid in Divorce

Divorce is a difficult process, both mentally and emotionally.  It can also be a financial mess. No one wants to make life-altering financial decisions when they are at their most vulnerable, but that is exactly what divorce forces you to do.  Not only are you mentally and emotionally exhausted, you are also trying to navigate a complicated legal process that you (often) have not been through before. Here are ten financial mistakes that are too easy to make when in the midst of a divorce.

  1. Being in the Dark – If you have never looked at the family finances, now is the time to do so. It is critically important that you have a handle on what assets you jointly own and how much they are worth.  Check your credit score and search for any assets that your spouse may have hidden from you.
  2. Focusing Small – Do you really want to spend time, effort and money to hold onto the china you were given for your wedding?
  3. Thinking Only in the Short-Term – Make sure you put real thought into how any proposed settlement will affect your finances five, ten and twenty years down the line. Can you afford to keep the house, or will the upkeep and taxes be too much? Perhaps more retirement assets would be better.
  4. Ignoring Reality – Household bills, groceries, medical needs and insurance payments can add up fast. It is easy to say that you will cut back on expenses and ask for a raise at work, but it is much harder to guarantee these things.  Be realistic about your expenses and how much you will need when you are on your own. It is also a good idea to build up an emergency fund for unexpected expenses.
  5. Seeking Revenge – We get it. Your lying, cheating ex deserves to be taken for all he or she is worth, however it is financially wise to be the bigger person.  Creating unnecessary conflict drags out the proceedings, which costs lots of money in legal fees.  Save that money for a nice post-divorce vacation instead.
  6. Neglecting Your Homework – Once the settlement is final, you can breathe a little easier, but you aren’t done yet. Update your will and other estate planning documents as soon as possible to make sure you and your family are protected.
  7. Believing Your Attorney is a Financial Expert – While your attorney likely has a lot of experience with divorce proceedings and settlements, it is generally a good idea to bring in a financial advisor to make sure you are receiving the best possible settlement. A Certified Divorce Financial Analyst (CDFA) can help you assess your financial situation and figure out how any given settlement will look in the short- and long-term.
  8. Letting Debt Linger – Marital Debt is generally divided like any other asset, but you are not necessarily off the hook if it goes to your ex-spouse. If your ex neglects the debt obligation, creditors will seek you out for payment, no matter what was in the separation agreement.  The best way to avoid this financial headache is to use marital assets to pay off any debt during the divorce proceedings, if possible.
  9. Leaving Benefits on the Table – Just because you are no longer married to your ex-spouse doesn’t mean you can’t benefit from him or her in retirement! If you were married at least 10 years and do not remarry, you could be entitled to a Social Security benefit based on your ex-spouse’s earnings.  Taking this benefit does not reduce the amount that your ex-spouse receives, so there’s no reason not to take advantage if you qualify.
  10. Failing to Cover Your Bases – Many people who receive spousal or child support rely on that money for daily necessities. It is important to make sure those payments keep coming.  What would happen if your ex-spouse died or was disabled? Taking out a life or disability insurance policy on your ex may be a prudent step in ensuring that your future is secured.  Make sure that you own the insurance policy to give yourself the most protection.

The role of a CDFA is to make sure clients and their lawyers fully understand how the financial decisions they make today will impact their financial future and to analyze a settlement proposal before the client signs an agreement that he/she may later regret.

For additional information contact Keith Hoffman at krhoffman@herbein.com.