7 common financial mistakes when filing divorce

Financial experts see certain mistakes time and again when working with someone going through a divorce. The saddest part is that these are often the doing of the spouse. Some mistakes can be fixed during or after the divorce, but others cannot.

According to finance experts, common mistakes that make the process more difficult and expensive include:

 

• Shopping: Retail therapy may brighten your mood, and fancy new cars or apartments can make a statement, but people often underestimate the cost of their lifestyle, which will be brought into stark relief when they find themselves living on a single income possibly with money going to an ex.
• Cashing in investments: You can tell yourself that you’ll put the money back, but the money comes at a price. The seller will need to pay taxes on highly appreciated assets, and they will likely pay penalties for taking money out of accounts early – emptying a 401(k) before age 59 ½ can lead to a 10% penalty. It also affects your long-term financial goals.
• Not realizing that taxes on support changed: Spouses no longer get tax deductions for paying spousal support. This means that the spouse paying support is paying higher taxes than when they were married.
• Cashing in a QDRO: Those getting a qualified domestic relations order are entitled to a portion of a spouse’s pension, which they can put in an IRA account under their name. However, taking that money out can put you in a higher tax bracket.
• Insisting on keeping the house: Houses are great investments, but it may be worth less than the amount owed. Large houses are also expensive to maintain and can have high property taxes.
• Quitting your job to avoid alimony: This does not work. While judges will show patience or compassion for those who lose their job through no fault of their own, the obligation will be the same it is determined that a spouse lost their job because of their actions. Moreover, the other side will check to make sure there is no payout held until after the divorce is final.
• Not having a financial plan: A newly single spouse or parent still needs to plan for retirement. It is best to sit down with a financial planner to set some goals and be proactive by taking control of your financial planning.

Divorce attorneys can start this process

Divorce attorneys will spend a lot of time talking about assets, finances and what a settlement can look like. Regardless of one’s interest, it is in their financial interests to think carefully about these matters during and after the divorce.