The stress of divorce can cause you to make some big financial mistakes. Face it, it is hard to think clearly when you are scared, angry, frustrated and/or worn down. You are getting unsolicited advice from those around you or you are isolated and do not know where to turn for advice.
Here are five mistakes to avoid:
Making emotional decisions about finances
I have seen emotions lead to bad financial decisions. Take the client who says “I would rather pay you than pay her.” You may just end up paying your attorney AND your wife. Emotion can also lead you to keep an asset, such as the house you cannot afford, just so your spouse cannot have it. At some point, you have to put on your game face and treat your divorce like a good business transaction and not let your judgment be clouded with emotion.
Ignoring how taxes will affect your settlement
Your attorney explains the tax implications of retaining certain assets and your eyes glaze over. Not good. In all likelihood, taxes affect the value of the property you are receiving, whether it is capital gains on investments or retirement assets. You also need to understand the implications of paying or receiving support. If you do not have an accountant, you should consider finding one and meeting with them before you finalize your divorce.
Not thinking long-term
Do not give up valuable assets for the promise of fast cash unless you absolutely need it. If your divorce settlement is your only source of assets and income you can anticipate other than social security, focus on assets that will work for you long term, such as retirement assets. A home without a mortgage may seem like a good idea for lower monthly expenses, but could leave you without cash for large expenses.
Trying to settle before your spouse is ready
While you may have decided years ago your marriage is over, your spouse was shocked to receive the papers. You have already mourned the death of the marriage and they have not yet started. I see this all the time. The one who wants out makes a sweetheart offer just to get it done. Then, they are shocked when their spouse does not respond for months or wants double. Cases only settle when everyone is ready to settle. Making a sweetheart offer too early can make you bet against yourself.
Pigs get fed, hogs get slaughtered
Make sure your expectations are in check with reality.
Of course, your attorney is there to help you avoid mistakes. Here is how to get started. Also, you may find helpful to read about what to expect at an initial consultation.