I often see divorce professionals telling clients things to make them feel better when the hard truth is needed. Things like nothing has to change financially for you or yes, you can keep the house. They tell you what you want you to hear which can lead to making some easily avoidable mistakes.
Your household income as a couple will now be supporting two households, so things will change. So here are my top Three mistakes. (but not a complete list by any means)
#3 – The settlement doesn’t take taxes into effect!
Absolutely do not agree to a settlement without knowing the tax implications! What people often find is that the tax burden on their half of the marital assets is significantly higher than their spouse’s making their “half” of the assets worth significantly less than they thought! Attorneys are not accountants or financial advisors. This is why in Collaborative Dissolution we include a CDFA® Certified Divorce Financial Analyst on the team. They are trained in all things financial when it comes to divorce.
#2 – Pensions are split 50/50 but no one knows what that really means.
I have seen a number of divorce decrees that order pensions split 50/50 but no one has any idea what will actually happen. When do you start collecting? Is there an option to take a lump sum? Will there be a cost of living increase each year? What if you or your spouse dies? Will it keep paying? Will it double? When I ask these questions, no one has ANY IDEA what the answers are? Really? How can you possibly agree to a settlement without understanding something so crucial to your retirement? Again, in the Collaborative process these questions will be raised and answered before any final decree is signed.
#1 – The biggest mistake I see is keeping a house you can’t afford.
The home is an emotional topic. It is tied to family memories and identity. Before you consider this option, you must do a budget. Then work with your CDFA® to see if keeping the house is feasible or come up with workable alternatives. I have witnessed where a couple of years down the road the spouse who “won the house” has run out of cash. They are forced to sell at a less than opportune time. The selling costs are about 7% of the sale – all of which would have been split 50/50 with the ex if they had sold as part of the divorce.
Bring in the right experts for your dissolution/divorce to make sure that you make the best decisions. It all starts with having a complete picture. Sometimes that picture is less than you had hoped for but an honest professional will tell you WHAT YOU NEED to hear, not just what you WANT to hear.The article was contributed by Donald Morris CDFA® Certified Divorce Financial Analyst and financial advisor. Donald is currently serving as president of winwindivorce.org.