The two things that people worry about most in divorce are their money and their kids. Unfortunately, worrying about money doesn\’t prevent those same people from making enormous financial mistakes in divorce.
Here are a list of the top financial mistakes people make in divorce. If know them, you can (hopefully) avoid making them yourself.
10 Divorce Financial Mistakes to Avoid
1. Not taking the time to do an accurate post-divorce budget BEFORE you settle! Doing a budget is a hassle. Roughly two thirds of Americans don\’t make (let alone follow!) a budget. But trying to settle your divorce case without making a budget is like trying to drive from Texas to New York without a map. You can do it, but you are probably going to get lost a lot along the way.
2. Not insisting on getting all of your (and your spouse\’s) financial documents. No one likes to spend days digging up and organizing old financial documents. But nothing causes people to make more divorce money mistakes than not getting the financial documents that show whether their budget and balance sheet are accurate reports of their financial situation, or simply creative fiction.
3. Not getting assets valued. Getting your house appraised or your spouse\’s pension valued when you are getting a divorce is a hassle. It takes time and costs money. But the only way to really know what your house is worth is to sell it, or get it appraised. The only way to know what a pension is worth is to get it valued. If you choose not to do either, that is fine. Just know that, without having accurate asset values, you really have no idea how much either you or your spouse is getting in your divorce settlement.
4. Not looking at (and understanding!) all of your financial documents. It is not enough to get the financial documents that show the state of your family\’s finances. You actually have to read them and understand them. If going over numbers makes your head spin and your eyes glaze over, all I can say is: You\’re going to have to suck it up and learn. Or risk getting screwed. It\’s up to you.
5. Relying on your lawyer to do everything. Lawyers know the law, but they are not accountants or financial planners. If your finances are complicated, if you own multiple businesses, or have lots of different investments, you may need to either consult with a divorce financial planner, or hire a divorce attorney who has a strong financial background. No matter who you hire, you are also going to have to carefully review your financial documents yourself. No one will be able to spot financial inconsistencies better than you will.
6. Not understanding how taxes will affect your support and settlement. There is no way you can know how much your divorce settlement is really worth without understanding how taxes will affect that settlement. Taxes affect the value of the property you are receiving, and the amount of support you will actually receive or pay. Unless you want to be surprised with an enormous tax bill after your divorce, you would be wise to make sure you know the tax implications of your settlement before you get divorced.
7. Forgetting about the long term. Negotiating a support agreement that will allow you to live after the divorce is critical. But, unless you are going to be getting support for the rest of your life, you have to plan for the time when your support runs out. Regardless of whether you are receiving or paying support, you also need to clearly lock down the exact terms of support in your divorce judgment. Knowing how long you will have to pay (or will receive) support, whether the support amount is modifiable, and whether support can be extended for any reason is key to everyone\’s long term financial security.
8. Not thinking about insurance. Lots of different types of insurance can affect your divorce settlement. The biggest are health and life insurance. Not including the cost of health insurance in your post-divorce budget can leave you with a gaping hole you can\’t fill. Life insurance is critical for securing child support. If you are paying support and you die, what is going to happen to your kids? If you are receiving support and your spouse dies, how are you going to support your kids?
9. Sacrificing your own financial security for your children. We all want the best for our kids. We all want to shield our children as much as possible from the ravages of divorce. But there is a reason that flight attendants tell you that, if the oxygen masks come down in the plane, you should put your own mask on first before you put a mask on your kid. You are not doing your kids any favors if you negotiate a settlement that requires you and your ex to keep your kids in private school or expensive extracurricular activities if doing so means you can\’t pay the mortgage.
10. Making settlement decisions out of exhaustion. Divorce is a marathon, not a sprint. Unfortunately, for most people, the most significant settlement negotiations occur at the end of the case, after you have spent months or years fighting with your spouse. By the time you get to the end, you are tired. So you give in and agree to a settlement just to be done. By the time you realize you have just made a huge financial mistake, it is too late to fix it.
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