According to a 2016 study by the American Bar Association, a majority of people who don’t go to a formal advisor for assistance with a civil justice situation neglect to do so because they believe they have “no need for advice” or that such advice “wouldn’t make a difference.”
Getting divorced gives you something in common with around half of previously married people. Yes, half of all marriages do actually end in divorce. The U.S. marriage rate is 6.9 per 1,000 while the divorce rate sits at 3.2 per 1,000 population.
With all that divorce comes a fair amount of financial decision making. Splitting assets becomes a fight where each party thinks they have the best version of “equal.”
Protecting yourself during the divorce process is all about understanding how to manage your finances. If you’re not careful, getting divorced can lead to losing more things than your marriage license.
People can and do lose a significant amount of their hard earned money and physical assets. That’s why today, we’re breaking down the top financial mistakes people make during a divorce. Keep reading for our divorce tips.
Divorce Tips #1: Debt, Of all Kinds
Some debt gets classified as “good debt.” Mortgages and car loans are often championed as ways to build credit and quickly gain equity without putting up large amounts of money. That sentiment holds true, but during a divorce, all debt is troublesome debt.
Debt in a divorce is often what’s called unsecured debt. Most people hold unsecured debt as consumer credit card debt.
Unsecured debt taken on during the marriage is a shared liability. Collection companies will come after both parties as the debt is both of your responsibility.
It’s always best to mutually pay off credit card debt before proceeding with the divorce.
#2: Asset Issues
During your marriage, you accumulate things. Those things could be tangible things like vehicles or abstract things like financial assets. Divorce means splitting those things “evenly.”
Let’s start with the tangibles; cars, property, and the like. Equal division of property is not a fair division of property. There’s every chance that you disproportionally financially contributed to some asset. If you’re making more money than your spouse you probably contributed more to car payments, home payments, etc.
Paying extra morally entitles you to large percentages of those items. Obviously, those things can’t actually split into pieces, so instead, you’re entitled to the most valuable assets. Remember, assets that generate wealth, like property, are worth more than assets that depreciate, like vehicles.
Beyond the expensive assets, you’ll also end up splitting everything else you own. Don’t get too attached to things that aren’t valuable. If something has sentimental value make sure you fight for it. However, don’t get caught up on the couch just because you think it’s comfortable.
Financial assets are different than tangible assets. Even if you’re the one managing the investment portfolio, your spouse is entitled to those assets. Always seek a professional opinion before dividing financial assets. Volatile assets don’t make good bargaining chips.
And with financial assets, there’s always…
#3: Taxes and Retirement
Financial assets are often taxed post-divorce. You’ll need to work with your financial advisor to determine the potential tax implications and how they affect your assets’ value. There’s a chance you’ll also have to pay taxes on any property received in your divorce. Always consult with your divorce attorney before making any proposals to your spouse.
Tax implications also extend to your retirement accounts. Joint accounts are subject to taxes if liquidated. However, a Qualified Domestic Relations Order allows your contribution plan administrator to pay money out of accounts. Always get a QDRO order.
#4: Underestimating Your Expenses
Being married changes your financial world. You’re used to having two incomes and a good amount of spending money. Getting divorced significantly impacts your financial situation. You need to start thinking about your new income versus your existing expenses.
Always make sure you’re negotiating for enough assets to cover your expenses. Remember, money can come from alimony or selling off assets. Held financial assets aren’t liquid and won’t help with your monthly expenses.
Your monthly expenses will likely change after your divorce. You might need a new car. Or a different house to live in. You need to account for any unexpected costs that arise from the divorce settlement. Be sure to update your expenses list while the settlement is evolving.
#5: Being Combative
Not all divorces are amicable. Many are tenuous at best, while others are downright nasty. No matter what happened in the marriage, being combative during the divorce proceedings will only lose your time and money.
Yes, you need to stand up for your rights. Your lawyer will ensure you’re getting your fair share. However, don’t start fights over the small things. Dragging out the divorce will only cost you time, which itself is far more valuable than money.
When Divorce Tips Aren’t Enough
The above divorce tips are only a few steps in keeping yourself financially protected during your divorce. Just because you know what to look out for doesn’t mean you’re reading to navigate a divorce alone. That’s where we can offer our help.
Hiring the best divorce lawyer possible ensures that you’re getting fair, strong representation. You need someone in your corner to help create a settlement that’s in your best interest.
Our professionals have years of divorce settlement experience. We’ve seen every type of divorce, from mean to nice and everything in between. We’re financially savvy, legally savvy, and emotionally savvy. Navigating a divorce takes all three traits.
If you’re planning on divorcing your spouse, or are in the middle of a divorce, get in contact with us for a consultation with an intake specialist. We can help you navigate the legalese and come away with a fair settlement that ensures you’re financially stable.