What are the Most Common Financial Mistakes Made During Divorce?
Even under the best of circumstances, splitting up with your spouse can be a heavy burden to bear. Amid the emotional rollercoaster and logistical concerns, it’s not uncommon to accidentally overlook important financial decisions—or even make impulsive and financially detrimental decisions.
You don’t have to resign yourself to taking a major hit to your savings, though. With the right strategy, planning, and help from a family law attorney, you can mitigate the financial impacts of divorce. Protect your family’s financial future by educating yourself on these common financial mistakes to avoid during divorce (and what to do instead).
Wasting assets out of spite
Spiteful spending can feel tempting in a contentious divorce, but it doesn’t just harm your ex-spouse. It can also lead to a decreased divorce settlement amount for you. Moreover, reckless behavior can reduce the funds available to cover marital debt, child support, and other financial obligations.
Instead of misusing marital assets out of spite, stay focused on your future and work with your family law attorney to create a settlement that follows New Jersey’s equitable distribution guidelines.
Keeping joint accounts
Keeping joint accounts open during a divorce can result in further financial entanglement and potential disputes down the road. Consider closing all joint accounts and open separate accounts as soon as you decide to divorce. This can minimize confusion or disputes, and protect your well-being if a disgruntled ex-spouse attempts to steal or misuse your assets.
Believing that your separate property is yours
Until your divorce settlement is finalized, it’s best to proceed with caution when it comes to separate and marital property.
You may believe you’re entitled to the property you brought into the marriage, such as a retirement plan, vehicle, or even a business. However, if that property increased in value while you were married, your ex-spouse may be entitled to a portion of that increase.
Consulting with a family law attorney will give you a better understanding of which property is considered separate and which property is considered a marital asset. If your attorney informs you that certain property may be subject to division during the divorce process, you may want to avoid attempting to transfer ownership of the property until matters are settled.
Not considering mediation
Assuming that mediation isn’t an option is one of the most common financial mistakes made during a divorce. Many people don’t realize that you don’t have to agree on every aspect of the divorce to participate in mediation and work toward a more favorable settlement.
Compared to litigation, mediation can provide a cost-effective and less adversarial solution for divorce settlements. Even if you and your ex-spouse can only come to an agreement on one issue during mediation (for example, child support, marital debt, or spousal support), the time and expense of future litigation could be significantly reduced.
Leaving division of assets to the court
While the court has guidelines in place to determine an equitable distribution of property from a financial perspective, the court has little to no insight into the sentimental value of marital assets. Leaving the division of your marital assets to the court can result in a settlement that is not in line with either party’s interests or expectations.
Instead, consider working with your attorney to negotiate an agreement. Mediation can be a valuable tool for all aspects of the divorce process, but especially division of assets. Working with a divorce attorney trained in mediation can help establish a mutually satisfactory division of assets with less strife than a litigated divorce. For example, you might be willing to let go of your stake in your ex-spouse’s retirement plan in exchange for a higher spousal support payment.
Overlooking the impact of taxes in a divorce settlement
It’s important to consider the tax implications of a divorce settlement as they can significantly impact the financial outcome for both parties. What may initially look like an advantageous settlement could quickly diminish in light of tax implications. For example, many retirement accounts are subject to large tax penalties when funds are withdrawn before the account holder reaches a certain age.
Before making a final decision, consult with a financial advisor or tax specialist in addition to your family law attorney to ensure that the divorce settlement takes into account any potential tax implications.
Failure to evaluate settlement proposals
Oftentimes, early settlement proposals can be unfavorable for one party. Even if a settlement proposal appears to be fair and equitable on the surface, it’s best to review it with the help of a family law attorney to make certain that it’s fair and equitable under the law.
Note that even if you don’t mind the terms, the court will not approve a settlement that is only advantageous for one person.
Failure to develop a post-divorce financial plan
Without a post-divorce financial plan, you may struggle to adapt to managing your finances and standard of living as a separate household from your spouse. Not to mention, new financial obligations such as spousal support or child support can throw a wrench into what was once a functional budget.
You might also hope to meet new goals in your life after a divorce, such as going back to school or starting a business. Consulting with a financial advisor can help you create a strong foundation to develop a post-divorce plan that accounts for your future expenses and financial goals.
Not consulting with an attorney
In an effort to save time and money, some couples divorcing on amicable terms may opt to divide marital assets and marital debt (or even attempt to draft their divorce settlement) on their own instead of working with an attorney.
If a couple works together well, a “DIY divorce” approach may avoid conflict—but it often leads one or both spouses to leave on the table marital assets, spousal support payments, or even life insurance that they’re legally entitled to as part of the divorce.
Consulting with a divorce attorney, on the other hand, helps you make an informed decision about your divorce settlement. While a divorce attorney is not a financial planner, they can work with you to understand the impact of your divorce on your assets and what to consider to maximize your future financial security. (And, of course, an experienced attorney should always be willing to work alongside a financial planner or advisor if you wish!)
Protect yourself from these common financial mistakes—consult with an attorney
Consulting with a family law attorney is crucial to completing the divorce process as affordably as possible and ensuring a fair and equitable divorce settlement. The family law attorneys at Dughi, Hewit & Domalewski are well-versed in the nuances of New Jersey divorce law and are prepared to advocate for your rights when it comes to the division of assets, financial support, parenting time arrangements, and more.
Our professional and compassionate team is here to provide the support and guidance you need to achieve the best possible outcome for your family in a timely and cost-effective way.
Contact us for a free consultation with a qualified family law and divorce attorney today.