Divorce requires important and often life-changing decisions. A divorce impacts current emotional and financial family situations and each family member’s future financial security. That is why it is imperative to take the necessary steps to proactively circumvent the common (and avoidable) financial pitfalls during the divorce process.

To avoid money mistakes, you must prepare for what may be a challenging and lengthy divorce process. Seeking appropriate legal or financial guidance can help you make educated decisions and avoid these financial missteps –

Failing to Obtain A Comprehensive Financial Picture of Marital Assets Before Separating

Sound financial decisions require you to have in-depth knowledge about every marital asset. But note, the longer couples are married, the lines that separate individual and marital property [1] tend to blur. The marital financial information must be accessible and may include –

• Liquid assets – cash, money market, or bank savings accounts.
• Non-Liquid Assets – real property or land.
• Individual Property
• Insurance Information
• Stocks/Bonds
• Retirement Accounts
• Marital Debt
• Ownership in an existing business, among others.

Your divorce attorney must receive a detailed financial accounting of your marital assets as of the official date of separation. It is important to approach the distribution of marital assets with integrity.

Hiding Your Jointly-Owned/Marital Assets

When calculating the value of marital assets for the divorce, don’t be deceitful by trying to conceal joint assets.

Any experienced divorce lawyer or forensic accountant [2] has the skills to identify schemes involving cryptocurrency wallets, unusually complicated trust arrangements, or assets held in an overseas account. Ultimately, attempts to hide assets are viewed negatively by both lawyers and judges and may even result in less favorable rulings because of your dubious choice to hide a marital asset.

Thinking You Know The True Total of Your Marital Assets

Approaching a divorce, thinking that you know the total of all marital assets, is, at a minimum, short-sighted.

Despite the outward behaviors of divorcing spouses, the reality is that a soon-to-be-ex might be inwardly bitter and choose to proactively (and punitively) hide joint assets or income. An attorney will have the tools to help identify if assets are being hidden.

Failing to Set Aside Enough Capital to Make it Through the Divorce

Although each divorce proceeding’s timeframe differs (based on the scenario’s specifics and the spirit of cooperation of each divorcing spouse), most tend to take months, sometimes years. The uncertainty of the time it takes to complete a divorce makes it important for you to have set aside (or saved) enough before the formal split.

Note, if you do not have the capital and money to support yourself until the divorce details are finalized, you may be able to get a court order that requires your ex to provide financial support until the divorce concludes.

Over Spending As a Coping Mechanism

The reality is that each divorcing spouse’s financial picture will change as a result of a divorce. The stress caused by a bitter divorce may cause an otherwise financially-prudent person to engage in some retail therapy at a time when it is essential to be mindful of all spending. This overspending in reckless, non-beneficial ways is known in legal circles as the dissipation of marital assets. [3]

Postponing the Unavoidable

Separating finances with a soon-to-be former spouse should be done quickly and cleanly. If agreeable, close all joint accounts –

• Split accounts and retain paperwork.
• To avoid one partner punitively running up the balance, joint credit cards should be closed.
• Remember smaller joint accounts like a cellphone bill.

Certain assets and debts (like real property and an existing jointly-obligated mortgage [4]) will likely need help from a financial or legal professional and more time to complete.

Forgetting to Budget for a Modified Life

Divorce often creates financial shock for those involved. A dual-income family’s transition to a single-income household can be challenging because many household bills will now be paid by only one earner rather than two.

It is imperative to be realistic about your future financial situation when preparing for your future, especially if you were the spouse that historically earned less or chose to be a stay-at-home parent.

Ignoring Tax Consequences

The financial and money issues typically a part of a divorce (like child support, alimony, or retirement accounts) are subject to varying tax obligations. While alimony is no longer required on a federal tax return with the 2017 Tax Cuts and Jobs Act [5], state tax laws may create a tax obligation.

Agreeing to a Proposal Prematurely

The challenging, emotional, and complex nature of the divorce process makes it easy for those involved to want it finalized – yesterday, despite it would be a decision made for all the wrong reasons. Deciding to hire an attorney to protect your interests during a divorce is an ideal way to ensure you can make educated decisions throughout the process.

The Bottom Line

Negotiating a divorce often generates anxiety as your future life will look very different from your past and current world. Although challenging, it helps to approach a divorce unemotionally (if possible) – like a business deal. But this can get tricky because very often, the person you’ve married is quite different from the person you are divorcing.

A divorce lawyer with experience can help you understand how to reach the best outcome for the near and not-so-near future.

Sources:

[1] https://www.law.cornell.edu/wex/marital_property

[2] https://www.acfe.com/career/career-paths/career-path-accounting/career-path-detail-forensic-accountant

[3] https://www.gma-cpa.com/blog/dissipation-of-marital-assets-in-divorce-red-flags-to-look-for

[4] https://themortgagereports.com/32352/how-to-remove-your-ex-from-the-mortgage

[5] https://www.law.cornell.edu/wex/tax_cuts_and_jobs_act_of_2017_%28tcja%29