Divorce is one of the most stressful domestic situations you can find yourself in. Besides the emotional trauma divorces pose, they also cause financial damage and can lead to financial insecurity. That's why you should be keen when you make decisions during your divorce settlement to avoid possible financial mistakes.
If you intend to file a divorce case but don't know the various financial mistakes to avoid, this blog is for you. Here are some common financial mistakes in divorces and how you can avoid them.
Emotional Attachment to Assets
Marital assets, like earned pensions and residential property, can trigger emotions during divorce negotiations. Unfortunately, emotions during divorce negotiations make it difficult for the involved parties to make sound decisions. For instance, the family home you could be emotionally attached to can have negative or low investment returns because of a real estate market crash.
Always be open-minded and realistic during divorce negotiations to avoid assets that won't benefit you financially in the long run. Also, aim to maximize the cash you get during a divorce to avoid an economically strenuous life after the divorce.
Ignorance of a Post-Divorce Financial Plan
Likely, a single lifestyle will be costlier than a lifestyle in marriage. Failure to have a good financial plan can result in unnecessary financial constraints after your divorce settlement. So ensure you prioritize your most important financial objectives and goals during a divorce settlement.
Also, avoid unrealistic or exaggerated expectations since they can cause improper financial resources division.
Ignorance of Your Marital Financial Status
Ignorance of your financial status and that of your ex-spouse can cause an unfair financial outcome after a divorce settlement. To avoid this, make a critical analysis of your earnings and expenses during a divorce. Also, seek help from a divorce attorney immediately if you realize that your ex-spouse has hidden marital assets they don't want to disclose.
Ignorance of Tax Implications
Property transfers, child support, and filing status are a few tax issues that could arise after your divorce settlement.
For example, according to the IRS, divorce-related property transfers are tax-neutral (they don't have tax implications) if the transfer happens within a year after the divorce. Regarding child support, the payer spouse gets exempted from tax deductions and can also benefit from tax credits. Lastly, the IRS won't allow you to file a joint tax return with your ex-spouse after the finalization of your divorce.
An experienced divorce lawyer can enlighten you about possible tax consequences you might face after your divorce settlement.
Failure to File a Qualified Domestic Relations Order (QDRO)
How you and your ex-spouse agree to divide your pension plans, 401 (k), or other contribution plans should be in a Qualified Domestic Relations Order (QDRO). For example, with a QDRO document, the plan administrator in your ex-spouse's company can also pay you the agreed contributory plan share. So ensure you file this legal document to protect your rights for a contributory plan after divorce.
Failure to Seek Mediation
Negative emotions during a divorce can hinder you and your ex-spouse from agreeing on a fair settlement. If you don’t use mediation, your divorce might be a more emotional and expensive process. An experienced divorce lawyer with excellent mediation skills can help you and your ex-spouse settle your issues more amicably.
During a divorce, you need objective advice to avoid decisions that could negatively impact your financial life later. An experienced divorce attorney can offer the necessary advice you need — or even connect you with financial experts that will help you. If you want to file a divorce case and need professional legal counsel, call us today at
David Wilson, Attorney at Law.
