During most marriages, the finances of most couples become intertwined. It’s normal to combine funds, share accounts, and budget together. These are normal and advisable practices during a marriage, but financial issues can often become complex during a divorce.
Divorce often requires a thorough assessment and inventory of your income, expenses, assets, and debts. After all, as couples seek to address issues like child support, spousal support, and property division, having a complete understanding of the financial picture is important. It’s also essential to remember that the financial issues couples confront during a divorce can often become highly complex. Therefore, you’ll want to be certain to have a clear understanding of your financial situation and create a plan of action that will ensure you make the right choices for yourself and your family.
This means, among other things, being informed, thinking through issues carefully, and seeking the right advice from trusted professionals. It can also be helpful to understand some of the financial mistakes that are sometimes made during a divorce. Let’s take a closer look at some of those mistakes together.
- Failing to Look at the Total Financial Picture: Before you can reach a resolution in your divorce that is satisfactory for everyone, it’s essential to have a thorough understanding of your overall financial picture. This means reviewing income and expenses, assets and debts, investments, benefits, and potential future expenses as well. You’ll want to be thorough in making this assessment, as doing so will put you in a position to negotiate with the knowledge and confidence you need to make smart decisions. This is especially true if you were not the spouse who handled most of the financial matters, kept the budget, and paid the bills. In some marriages, one spouse primarily handles financial matters, and if the other spouse does not seek to become informed and advised, he or she could be at a disadvantage. As is the case in so many situations, knowledge is power.
- Not Considering Tax Consequences: Many financial decisions have tax consequences. Financial matters addressed during the course of a divorce are no different. Many divorce decisions, from spousal support to selling real estate to withdrawing from retirement accounts, have tax implications. Taxes can be a very complex and nuanced matter. Seemingly small decisions can have a significant financial impact. In a divorce, you may incur tax liability for some of the assets you receive – and in other cases, you may receive a tax benefit. Consulting with a knowledgeable and experienced divorce attorney and a qualified financial professional regarding the potential tax implications of your decisions is always advised.
- Overlooking Alternative Options: Although divorce is never easy, the good news is that now, more than ever, there are out-of-court methods of resolving issues that save most couples a great deal of time and money. Solutions like mediation, collaborative law, and lawyer-led settlement negotiations allow couples to avoid the stress of contentious courtroom litigation and offer freedom and flexibility to find solutions that work best for everyone involved. They can reduce the expensive legal fees associated with prolonged litigation in court and save time as well. Sometimes, couples make the mistake of overlooking these alternative solutions because they are simply not informed about all of the benefits or because they doubt that these solutions will work. While every situation is different, the truth is that in many divorces, these alternative resolution methods are excellent options and can save both spouses a great deal of money.
- Insisting on Keeping the Marital Home: For many people, it can often be hard to move on and move away from the family home, even when a marriage has ended. As a result, deciding whether to keep the marital home (and, if so, who will keep it) can be a difficult decision. Although it isn’t easy, trying to keep your emotions from unnecessarily influencing that decision is essential. Often, a home that a couple can afford with two incomes can become difficult to pay for on one income alone. The mortgage, property taxes, repairs, and upkeep – all of these costs can act up quickly. As a result, it’s essential to take a realistic look at the financial situation of each spouse post-divorce and make a practical decision based on that information. Attempting to hold onto the home when it doesn’t make financial sense can create significant stress for everyone involved.
- Failing to Seek Investment Advice: Many couples make numerous investments throughout a marriage. Investments are divisible during divorce proceedings. It’s understandable to assume that an investment account will grow throughout its lifetime, and so many people think that keeping an investment is worth giving up other assets. This very well may be the case – but not always. Like many other assets, investments can be complicated and affected by various factors. As a result, it’s essential to speak to a knowledgeable and experienced financial advisor who can provide advice about specific investments, their projected value in the future, and what decisions might be wise during the course of a divorce. Failing to do so can often be quite costly in the long run. Don’t make this mistake.
- Misunderstanding Your Debt Liability: Couples often accrue assets and debts during a marriage. Most people understand that property and assets are divided upon divorce – but so are debts. Debts incurred during the course of a marriage are usually a shared responsibility. It’s important to realize that even following a divorce, you may still be responsible for debt accrued during the marriage if you don’t divide the responsibility as part of the divorce process. Even if the debt has been allocated to your spouse, if your spouse is not paying off debts that were at one time in both of your names, it may affect your credit score, as debtors often do not recognize or abide by arrangements you’ve made with your spouse. This is why addressing and resolving debts before the divorce is essential, if possible.
- Not Knowing Your Spouse’s Investments and Benefits: During a marriage, particularly marriages of any significant length, spouses may accrue significant investments, pensions, and retirement benefits. As part of being informed and prepared, you must understand what benefits and investments your spouse has and the value and potential future value of those benefits. You may need to contact an actuary or other financial professional to help you calculate the value of those assets. You don’t want to overlook your right to claim benefits to which you may be entitled.
- Not Producing an Accurate Budget for Alimony and Child Support: If you are seeking alimony or child support, you should create a budget that accurately reflects your anticipated monthly expenses. You may want to consult a financial professional to assist you with this process. Creating a detailed budget may seem like a tedious task, but doing so will typically pay off in the long run.
- Insisting on “Equal Division”: It’s natural to assume that “equal division” would be the fairest way to divide assets and debts. It’s important to remember, though, that what may appear “equal” on the surface isn’t always necessarily so. An asset’s ultimate value isn’t necessarily defined by its current market value. For example, assets that generate income, like rental property or bonds, may be worth more than their “market value” on paper. Many types of assets might fall into this category. As a result, consulting with a financial professional before dividing assets is always advised.
- Failing to File a QDRO: A Qualified Domestic Relations order, or QDRO, for short, is a legal document that outlines how two spouses have agreed to divide retirement benefits like a 401(k), 403(b), 457 plan, or a pension plan, for example. A QDRO directs the plan administrator for the company to pay the agreed-upon amount to the non-employee spouse. Unfortunately, without a valid QDRO in place, these payments are often not made. Don’t risk your right to benefits that you may otherwise be entitled to by making this mistake.
- Choosing the Wrong Attorney: This last piece of advice is essential. Divorce, like any legal matter, can be complicated. There are often complex issues that must be addressed – and failing to understand the legal implications of your decisions can be quite costly. That’s why it’s essential to find and retain an attorney who knows and understands the law and can offer you the expert guidance and direction that you need every step of the way. At The Law Office of Dustin McCrary, we’re here for you.
Call The Law Office of Dustin McCrary Today
At The Law Office of Dustin McCrary, we understand divorce. In fact, it’s all we do. We don’t dabble in divorce while practicing primarily in another area. Our focus, and our passion, is helping every client through the divorce process smoothly and successfully so that they can move forward to a brighter chapter ahead. We would be honored to do the same for you. Divorce is never easy, but with the right attorney on your side, you can feel confident that you are moving forward in a way that is best for your family and your future. If you’re ready to get started, we’re here for you. Give us a call today. We look forward to speaking with you soon.