For most people, the divorce process is emotionally draining and mentally exhausting. Many people describe it as a time of being frozen, numb or moving in slow motion. Despite that emotional and mental trauma, you will be expected to go through your finances with a fine-tooth comb to ensure that your settlement agreement is fair and equitable. With the fog of divorce, that’s easier said than done!
Even if you feel like you are clear headed, here are a few of the most common money mistakes to look out for when getting divorced.
- Underestimating post-divorce expenses. You will be asked to do a financial affidavit that reflects your projected expenses AFTER the divorce. It is critical that you are realistic and don’t leave anything out. This information will be used to determine if spousal maintenance is necessary or not. You must be sure to include everything from your health care deductibles to anticipated home repair charges like the water heater needing replaced and even the cost of trash pickup. If you underestimate your expenses by $300 per month, that’s $3,600 per year. Where are you going to get that extra money? When you’re the primary breadwinner this mistake could lead you to agree to pay maintenance that you ultimately can’t afford. A CDFA, Certified Divorce Financial Analyst™ will help you look for errors in your affidavit and make sure that you don’t leave anything out.
- Believing that your attorney will handle everything. Your attorney is an expert in the law, not finances. Would you ask your doctor for advice about your car? No, so why would you expect your attorney to be an expert in finances? The attorney’s job is to ask you to fill out your financial affidavit and take your word for it that it is correct. A good attorney will glance over it looking for any glaring errors but that’s about it. The most commonly miss-valued asset is a pension. And sometimes, the pension is the most valuable asset in a marriage. I often see attorneys accept a present value statement from a pension as the correct value to include as marital property. It’s not. Not by a long shot. A CDFA™ can value it properly and make sure that tax ramifications are considered as well.
- Not taking Tax Deductions. Not everyone realizes that portions of your attorney or CDFA™ fees during divorce are potentially tax deductible. In fact, very few people do. Some fees for obtaining alimony and/or retirement funds during your divorce proceedings may be tax deductible. This means your QDRO fees are potentially deductible. This should be considered when the settlement is drafted. (As always check with your CPA to confirm as tax laws are subject to change.)
- * The more you and your spouse can work out about the finances, by simply communicating, the more money you’ll save. (re-read that line)If you have a divorce attorney relay information to the other spouse’s attorney, you’re racking up bills upwards of $400-600 an hour because you refuse to talk. This makes sense to no one. Get over any anger and talk about what will work.
- Letting your emotions make your decisions. So many people going through divorce just want to “get it over with.” This is not the time to just throw your hands up and agree to a settlement just to be done with it. This kind of thinking is why divorce so often leads to bankruptcy! A 50/50 split of assets is almost NEVER a truly equitable settlement. So, put the emotions aside, talk to your spouse. Take your time and make sure you thoroughly understand what your future will look like after your divorce and be sure to hire the right experts to help you.
This is where the collaborative divorce process shines. It employs a CDFA also known as a financial neutral, two collaboratively trained attorneys and a family life coach to help with the strain of divorce.
Better for you, better for the kids and better for the budget.
This article was contributed by Donald Morris, CDFA™ and financial advisor. Donald is currently the President of winwindivorce.org