The process of divorce is known to be emotionally draining and mentally taxing. Amid this turmoil, you will be required to perform a detailed examination of your finances to achieve a fair and equitable settlement agreement. To help you navigate this complex task, here are some critical financial mistakes to avoid.
Failing to Accurately Project Future Costs
When going through a divorce, you will need to complete a budget that projects your expenses after the marriage ends. It is essential that it is realistic and comprehensive, as it will be used to help determine if alimony is warranted. Have you accounted for costs like healthcare deductibles or future home maintenance, such as replacing a roof next year?. A seemingly small underestimation of $200 per month adds up to a $2,400 annual shortfall. For the recipient, this could force the addition of debt and for the primary earner, this could lead to paying alimony that is ultimately unaffordable. A Certified Divorce Financial Analyst™ (CDFA™) can help review your budget for omissions and errors.
Relying Solely on Your Legal Counsel for Financial Matters
Your attorney is an expert in divorce law, not in finance. Just as you would not ask a physician for automotive advice, you should not expect your lawyer to be a financial expert. While a good attorney may look for obvious errors, they will generally accept the financial affidavit you provide as correct. Pensions are one of the most frequently mis-valued assets in a divorce. Attorneys often accept the pension's present value statement as its true value for marital property, which is incorrect. A CDFA™ can properly value such assets and ensure tax consequences are factored in.
Making Decisions Based on Emotion
Many people experiencing a divorce just want the process to be over and may agree to a settlement to expedite it. This kind of rushed thinking is a significant reason why divorce often results in bankruptcy. It is important to understand that a 50/50 split of assets is almost never a genuinely equitable settlement. It is crucial to take your time, fully comprehend your post-divorce financial future, and hire the appropriate experts to guide you.
Overusing Attorneys for Simple Communication
You can save a significant amount of money by communicating directly with your spouse whenever possible. When you use your attorney to pass messages to your spouse's attorney, you can accumulate fees upwards of $600 per hour for conversations you could have had yourself. It is more financially sensible to manage anger and discuss what will work for both parties.
Overlooking Important Tax Implications
A surprising number of people are unaware that some fees paid to an attorney or CDFA™ during a divorce can be tax-deductible. Specifically, any fees related to obtaining alimony or retirement funds are eligible for deduction. Furthermore, it is critical that future embedded taxes in any property from real estate to stocks must be carefully examined to ensure an equitable settlement.
If you and your spouse are considering divorce, consider using a CDFA ™ to help plan your settlement and reduce attorney fees. Click here to schedule a complimentary consultation and explore your options. You only have one chance to get this right!