Divorce is stressful and it tends to cloud one’s judgment. You end up focusing on the wrong things, and that makes the process more complicated than it has to be. Two people ending their marriage usually have several things to argue or fight over, but asset division and distribution is by far the most conflicting topic. Although both parties want to gain a financial advantage in the divorce agreement, they fail at making prudent decisions. They let petty and insignificant matters distract them, which leads to loss or wastage of money.
Family Law Attorney in Bloomfield, NJ, discusses the top ten financial mistakes people make during divorce:
1. Not considering alternatives to litigated divorce
If you and your spouse have your differences or simply hate each other, a collaborative divorce would be out of the question. However, you should not rush into taking the matter to court. A contested divorce can be simplified by negotiating through lawyers. You should try mediation or arbitration before considering litigation. Litigated divorces are tiresome, time-consuming, and costly, so at least try to settle outside the courtroom. Hire a lawyer to simplify the divorce, rather than wage a war.
2. Remaining oblivious to finances
If your spouse was in charge of all household finances, and you don’t have a clue about total marital assets or income, you are clearly at a disadvantage. You might not know of investments they’ve made, savings they’ve stashed, or credit accounts in their name. They can easily take more than their fair share and you wouldn’t even know. It is time you track all your marital assets and sources of income, as well as undertake a course on financial management.
3. Underestimating individual expenses
You might think that your living expenses will greatly reduce when you’re not living with your spouse, but you shouldn’t be too sure about that. People often underestimate their individual living costs and get overwhelmed when they actually have to manage personal expenses on their own. You should calculate how much you spend in a month and create a budget to abide by; otherwise, you might go bankrupt very quickly.
4. Choosing equal over equitable division
Many couples make the mistake of dividing property on the basis of their current market value. In reality, all assets are not equal. Some are easier to liquidate, some appreciate over time, some are lucrative, while some lose value with time. For example, if a rental apartment and luxury car have the same market price at the moment, the rental is obviously the more profitable option. The rental will generate regular revenue and real estate costs usually go up with time. On the other hand, the car will get old and be out of demand at some point. It will wear with time and you might only be able to sell it for a fraction of the original cost.
5. Not getting insurance for child and spousal support
You might be happy about securing a handsome sum for child and spousal support in the divorce agreement, though that accomplishment would be fleeting without insurance. Your spouse may have agreed to pay the decided amount, but who says that they will be able to keep up with that promise? What if they become unemployed or suffer loss in business? You won’t get paid if they don’t have enough money at their disposal.
6. Forgetting about debt and taxes
Sometimes couples are so focused on claiming their favorite assets that they forget about tax and joint debt obligations. How much tax you pay individually will depend upon how you divide and distribute assets. You two are also equally liable for debt accumulated during the course of marriage, so you need to discuss how it would be paid off. You don’t want to be stuck with high taxation rates or be held responsible for all the debt incurred by your spouse.
7. Emotional attachment to assets
People tend to fall in love with material things, and the family home is usually one of them. When one spouse gets off the mortgage, and the other wishes to keep it, this can be quite an impractical decision. Paying your ex’s share in equity and singlehandedly managing future mortgage payments is burdensome to say the least. Do not cling on to something you cannot afford.
8. Not updating the estate plan
Following divorce, making changes or amendments to your estate plan must be a foremost priority. If you forget to update your estate documents in time, your ex might be able to claim all your property in the future.
9. Indulging in retail therapy
If the divorce proceedings have left you feeling depressed and empty, do not attempt to cheer yourself up with impromptu shopping sprees. These last minute indulgences could cost you big time. Wait for the divorce to finalize before you plan any big purchases. You will be more aware of your economic situation by then, and thereby make informed financial decisions.
10. Thinking short-term expenses only
You have to consider long-time financial stability at the time of divorce. If you were completely or partially reliant on your spouse’s income before, adjustments to your lifestyle would become necessary. You should consult a financial advisor and allow your divorce attorney to guide you towards a financially sound future.
