For many, divorce is an emblem of promises coming to an end. For some, it’s the beginning of a new chapter, a new path. Regardless, the loss involved makes it a devastating experience for all. Whether you were caught off guard by their infidelity or had to come to a mutual separation agreement with a person you thought to be your lifeline partner, the grief of ending one of the most important relationships in life can be quite extreme. And while you’re being tormented by sorrow, loss and anger, going through a divorce means you have to make critical financial decisions and agreements that will have lasting effects in your future.
Aside from processing and coming to terms with your emotions, you can try talking it out and seeking comfort in the companionship of your family and friends. Similarly, one of the best ways to reclaim your sense of self is to learn about financial mistakes to avoid during a divorce settlement so that you do not make decisions that will have you suffer financially for the rest of your life. While seeking professional divorce consultation and settlement services is always recommended, it’s important to be aware of some primary financial mistakes to avoid when proceeding with your divorce.
Seven Biggest Financial Mistakes to Steer Clear of During Divorce
It can be gut-wrenching to worry about other things when you’re already shouldering pain and grief during such a hard time. However, to avoid further trouble and suffering in the future, it’s essential to keep the below financial mistakes in mind and safeguard yourself during divorce:
1. Declining to Go Through Mediation or Arbitration
Let’s say you and your spouse have agreed to split up on mutual or even friendly terms. If the divorcing spouses wish to avoid taking their divorce to court and save money and time in the process, they can opt for the two forms of alternative conflict resolution called mediation and arbitration.
It’s always best to accept if your divorcing partner proposes to go through mediation or arbitration. These approaches maintain the confidentiality and privacy of the spouses and their divorce matters and retain more power over the results of the divorce. Each spouse should engage their attorney to look out for their best interests if they can afford it.
2. Being Too Hasty With the Process
No one wants to keep seeing their soon-to-be-ex-spouse again and again. Especially when there is physical, mental or financial abuse involved in the picture, you want the whole process to be done as soon as possible. While the prospect of seeing your ex-partner may be daunting or traumatizing to you, it’s important to remember that rushing through your divorce process can result in an unequal distribution of assets for the more vulnerable spouse.
In cases such as these, one side may take advantage of the other party’s desire to end the relationship and have them end the marriage without getting any proper support or claiming their rightful assets. After you’ve ensured your safety, go through the proper steps to identify and get a proper estimation of your assets and liabilities with professional help.
3. Accepting an Unfair Share of Marital Debts
While debts incurred during marriage are both spouses’ responsibility, accepting an unfair share of them is not. Accepting unfair marital debts can have extremely harmful, and in many cases, life-altering consequences. Creditors can often pursue one spouse for another spouse’s outstanding joint debts, even if the other spouse was unaware of the debt’s existence.
It’s important to identify and evaluate copies of each spouse’s credit reports that can help in finding any concealed consumer debts such as credit cards, personal loans and mortgage debts. It’s also critical to find any hidden business debts or potential lawsuits that can have even more serious and bigger impacts. When proceeding with divorce, make sure to identify these issues and seek legal help to distribute a fair share of marital debts between both parties.
4. Misvaluing the Marital Assets
Misvaluing assets means you’ll receive less than what you deserve. There are many ways assets can be appraised. To ensure peace of mind and fair distribution, each spouse should get an independent assessment of important assets. A mediator or judge can examine both evaluations and help agree on fair division. When getting your assets appraised, make sure to determine how much of an asset’s value change increased during or after the marriage.
5. Overlooking Retirement Assets
Spouses have their separate retirement accounts during marriage and the amount of assets in each account may differ quite a bit. This can become a problem if one partner has been the only breadwinner and has accumulated large sums in a 401(k) plan, while the other partner has raised the children full-time.
Since they would have no earned income, the working spouse would be more likely to have more or all retirement assets in their name. In such cases, a Qualified Domestic Relations Order (QDRO) permits the retirement plan assets to be fairly divided in a divorce. To make more informed decisions about retirement assets, consult divorce settlement services or a certified public accountant (CPA).
6. Rushing When Deciding Child Support
In instances of divorces including children, a big chunk of divorce settlement is spent ensuring the children receive fair financial and emotional support until adulthood. It’s important to avoid calculating child support payments solely on their everyday expenses.
When calculating child support, elements such as each parent’s income, the amount of time the child will spend with each parent and the child’s age are considered.
You also have to consider future school costs, medical costs (including health insurance premiums) and extracurricular expenses. Parents who wish to safeguard their children’s future should consider looking into a life insurance policy that will pay alimony and child support if the supporting ex-spouse dies unexpectedly. It’s vital to be diligent when determining child support since it can strongly influence the quality of life of your children.
7. Opting for a DIY Divorce
If you were to ask family law attorneys about big financial mistakes to make when divorcing your spouse, they’d unanimously call for a do-it-yourself divorce to the worst. Since marriage binds every aspect of a person with their spouse, separating these aspects is a difficult task that requires third-party assistance and expertise.
Attempting to manage your divorce on your own means attempting to manage complex legal and financial problems in which you’re not an expert. The outcome will have a huge impact on your future and your children if you have any. Having legal representation can help you reach a fair outcome, whether you’re the spouse who is more prone to yield too much or the one who doesn’t want to be taken advantage of. Even if the divorce is on friendly terms, hiring professional divorce consultation and settlement services can help guarantee that all assets and debts are properly accounted for, fairly valued and distributed without incurring extra taxes or harsh feelings from either spouse.
The Right Way to Handle Finances and Divorce
Not everyone has the expertise or skills required to manage complex legal and financial issues, and if their mind is fogged with grief and pain from separating from their partner, it’s hardly likely they’ll be in a position to think clearly. How you handle your divorce after splitting from your partner has a huge impact on your future financial security. Some financial blunders occurring during the divorce settlement could harm your finances and ability to start anew.
This is why proper hiring representation and consultation is well worth it. Since you’ll be in a space that leaves little opportunity for arranging funds and making wise financial decisions, going through a divorce with settlement services by your side will manage your assets, relieve you of the burden of crunching the numbers and ensure a financial safety net after your divorce.
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