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7 Financial Mistakes That Could Cost You Big Time in Your Divorce

Drew Duncan
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Partner at Zimmer, Duncan and Cole, LLP

A divorce can result in huge financial changes in your life as you adjust to having only one household income. A divorce is also very traumatic emotionally, and you don’t want to let your emotions play too much of a role when deciding the terms of your property settlement. This can result in costly financial mistakes that could affect you years after your divorce has been finalized.

Seven Financial Mistakes You Don’t Want to Make in Your Divorce

Dividing up the marital property and debts fairly is crucial to starting a fresh life. Here are financial mistakes you want to avoid:

  1. Not understanding the liquidity of assets. Liquidity refers to the ability to quickly convert an asset to cash. Bank accounts are very liquid because the cash can be withdrawn quickly. However, an antique vehicle or real estate under water can be very hard to sell quickly for market value. In your divorce, you need to understand your future income and expenses and be certain that you do not get an unfair amount of the illiquid assets.
  2. Failing to consider tax consequences. You must consider the tax consequences of receiving certain property and alimony in your divorce. Capital gains could be expensive depending on the property being transferred. Be certain you are not receiving an unfair amount of tax liability in your property settlement.
  3. Not understanding retirement account rules. You may need a qualified domestic relations order if you are transferring retirement account assets. An early distribution from a retirement account can also come with a mandatory 20 percent tax withholding, so you need to understand the tax consequences when dividing up retirement accounts.
  4. Not considering joint debts and credit ratings. If possible, you and your spouse should pay off all joint debt before your divorce is finalized. Creditors are not parties to your divorce and both parties would be liable for the debt—with credit rating consequences—if the spouse who agrees to pay the debt defaults in the payment after the divorce is finalized.
  5. Not checking on life insurance policies. Many divorce judgments require spouses to obtain a life insurance policy to insure the value of alimony, child support, and other future property settlements. If you or your children are the beneficiaries of the policy, you need to continue to obtain proof from your spouse that a valid insurance policy remains in place with all payments being made on time.
  6. Failing to budget. You must create a realistic budget of your income and expenses after your divorce considering what property you expect to receive. For example, if you are going to be awarded the marital home, you need to be certain that you have sufficient income to pay the mortgage, property taxes, insurance, and upkeep. You cannot reach a fair settlement in your divorce if you do not understand your lifestyle needs.
  7. Failing to identify hidden assets. If you suspect your spouse is hiding assets, you need to discuss this with your attorney immediately. He will be able to help you locate this property so you get a fair share of them in your divorce settlement.

If you are planning to file for divorce, you need an experienced family law attorney to ensure that you receive a fair settlement. Call us today at 888-733-2992 to schedule a free no-obligation consultation.

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