Divorce is like a financial obstacle course: you’re dodging legal fees, juggling assets, and trying not to trip over your own emotions. It’s high-stakes where the wrong move can cost you big time. But by arming yourself with the right knowledge and avoiding some common pitfalls, you can come out the other side with your financial future intact.
Not Understanding Your Complete Financial Picture
First things first: you can’t split up what you don’t know you have. And I’m not just talking about the obvious stuff like your joint checking account and the family home. Ladies, it’s time to channel your inner detective and uncover ALL the assets and debts you and your spouse have accumulated over the years. This means digging through paperwork, calling up banks, and maybe even hiring a forensic accountant to help you track down any hidden gems (or skeletons) in the financial closet.
While you’re playing Nancy Drew with your marital assets, don’t forget to take a hard look at your future expenses. I’m talking about the big-ticket items like your kids’ college tuition, your aging parents’ medical bills, and your retirement savings. These are the expenses that can sneak up on you if you’re not careful, leaving you scrambling to make ends meet on a single income.
Failing to Budget for Divorce Proceedings
Newsflash: divorce is expensive. Unless you and your spouse are some kind of divorce unicorns who agree on absolutely everything, you’re going to need legal representation. And that means shelling out some serious cash for attorneys’ fees. You may also need to hire a financial advisor, a tax pro, or even a therapist to help you navigate this emotional minefield. These costs can add up quickly, so make sure you factor them into your overall divorce budget.
If you’ve been relying on your spouse’s income to make ends meet, it’s time to understand how you might need to adjust your spending. You may need to downsize your home, cut back on extracurricular activities for the kids, or even get a job outside the home. Before you sign on the dotted line of your divorce settlement, make sure you have a realistic plan for how you’re going to support yourself and your family on a single income.
Making Decisions Based on Emotions
Divorce is not the time to let your emotions call the shots. Making financial decisions based on sentiment rather than cold, hard numbers is a recipe for disaster. Take the family home, for example. It may hold a lifetime of memories, but keeping it could be a one-way ticket to financial ruin.
Rushing to settle just to rip off the Band-Aid is a BIG mistake. Take the time to review every detail of your proposed settlement with a fine-toothed comb. If something seems off, don’t be afraid to push back and negotiate. It may prolong the process, but it’s better than realizing too late that you got the short end of the stick.
Neglecting Tax Implications
Divorce has some serious implications for your filing status. Consult with a tax professional to avoid surprises come April 15th.
Dividing assets in a divorce can also have tax consequences. If you’re selling off investments or real estate as part of the settlement, you could be on the hook for capital gains tax. More importantly, make sure that you understand the long-term tax implications that will apply to the assets you receive in divorce. Your divorce settlement should allow for you and your spouse to have similar long-term tax treatment for the assets you each receive. Again, this is where a savvy financial advisor or tax pro can help you structure the asset division in a way that minimizes your tax liability.
Disregarding Retirement Planning
If you and your spouse have been saving for retirement together, those accounts will need to be divided as part of the divorce settlement. Make sure you work with a qualified domestic relations order (QDRO) specialist to ensure that the division is done correctly and in compliance with all the legal requirements.
Once the dust settles on your divorce, update your beneficiary information on everything – your life insurance policy, your 401(k), and any other accounts or policies. Failing to do so could mean that your ex inherits your hard-earned money if something happens to you.
Work With Us
Divorce may be the end of your marriage, but it doesn’t have to be the end of your financial security. By avoiding these common blunders and staying vigilant about your money, you can come out of this experience stronger and more empowered than ever.
At Purposeful Wealth Advisors, we understand the unique financial challenges that come with divorce. Our team of experienced professionals is here to guide you through every step of the process, from separating assets to rebuilding your financial future. Contact us today to schedule a consultation and learn more about how we can support you during this transitional time.
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