Five Financial Errors That Will Cost You During a Divorce
Duncan E. White, Owner
Inkpointe Divorce Solutions, LLC
IRMO, SC – For most people, the divorce process is draining and exhausting. Many people describe it as being frozen, numb or moving in slow motion. While experiencing 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 divorce brain, that’s a lot 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 expenses after the divorce. You will be asked to do a financial affidavit that reflects your 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. You must be sure to include everything from your health care deductibles to anticipated home repair charges for the roof you need to replace. If you underestimate your expenses by $200 per month, that’s $2,400 per year. Where is that extra money going to come from? When you are the primary breadwinner,this mistake could lead you to agree to pay maintenance that you ultimately can’t afford. A Certified Divorce Financial AnalystTM will help you scrub your affidavit for errors 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 repairing 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 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. Oftentimes, the pension is the most valuable asset in the 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 and won’t be an issue down the road.
- Not consideringtax deductions. Not everyone realizes that portions of your attorney or CDFA® fees during divorce are tax deductible. In fact, very few people do. Any fees for obtaining alimony and/or retirement funds during your divorce proceedings may be tax deductible (this means QDRO fees). Also forgotten are how to handle tax deductions post-divorce. Who will claim the children? Should you alternate them each year? What about tax issues when selling the marital home? All ofthese issues need to be addressed on the front end of the settlement, so you don’t experience ongoing divorce wreckage for years to come.
- Letting attorneys do the talking for you. The more you and your spouse can work out by just communicating, the more money you’ll save. I’ve seen many couples that could not bear to be in the same room,but consider the cost.If you have your attorney relay information to the other spouse’s attorney, you’re racking up bills upwards of $600 an hour because you refuse to talk. This makes sense to no one. Get over any anger and talk about what will work. Get through it so you can get over it.
- 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 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 and 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 professionals to help you.
Duncan E. White is a Certified Divorce Financial Analyst (CDFA®) and has been a licensed financial advisor since 2010. He leads a Second Saturday Divorce Workshop each month for the benefit of those seeking information about the divorce process.
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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. LPL Financial and Inkpointe Divorce Solutions do not offer tax, legal or mortgage lending services or advice.