Even in the most amicable of situations, divorce is a complicated process. Going through a separation means changes for your personal life but also for your financial circumstances. Have you thought about what this transition means for your future? Even if you feel uncertain about this next phase of life, there are steps you can take to protect yourself and plan for a positive outcome. The most important thing to remember throughout the process of divorce is to be honest and knowledgeable about your finances.
The worst thing you can do if you’re facing divorce is stay in the dark about your financial situation.
What’s the best thing you can do? Become educated on the finances of your household before the split is final; better yet, before it even has begun! Has your spouse handled the finances for years? It’s time to start collecting all the information you can. You’ll be glad you did when you start making decisions about your finances in your divorce settlement and preparing for life beyond.
How can you prepare for your life after divorce? Get your hands on information. Make copies of financial documents, take inventory of all financial records – think about account statements, credit cards, retirement accounts, and even tax returns so you have income information. Don’t forget about life insurance policies.
If you’re facing a divorce, avoid making these top five financial mistakes.
Making Financial Decisions One at a Time
It is imperative that you look at your entire financial situation when you’re making decisions in a divorce. Each one is intertwined and could have a number of outcomes, either positive or negative, for both you and your spouse. There are tax ramifications and all kinds of other situations to consider with every decision no matter how small! Looking at only one account or asset at a time without considering the big picture is like building a house without a blueprint. You’ll only end up with disaster.
Assuming that Equal Division of Property and Assets is Fair
“Fair” is such an important part of a divorce settlement. But how do you evaluate the settlement without understanding the true value of property and assets? There are lots of factors to consider like inflation, taxes, and the long-term appreciation or depreciation of property. While no one really knows exactly what the future holds or what the markets will do, it’s important to get a fair evaluation of the value of ALL your assets before dividing them appropriately. This usually requires an outside expert.
The house is often one of the most divisive assets in a divorce. Many couples think – “she/he gets the house, so I get the other assets…” but this isn’t always an advisable solution. The house may be worth less than what is owed, and houses also cost a lot to maintain – there’s the mortgage, the upkeep, the taxes, etc. Think about your future situation, and your budget, to determine if keeping the house is a sound financial decision. Want to get a good assessment of how to divide property and assets? This brings us to our next mistake...
Not Consulting a Professional
We understand that not everyone is a finance guru. Do you really have the time to sit down and figure out what each asset is worth and the skill set to understand what the situation could be five years down the road? No! Get a financial professional, an estate attorney, or better yet – work with somebody like California Wealth Transitions who can coordinate with other professionals on your behalf. It’s part of getting the whole picture together so your financial future is as secure as possible. These professionals will look at every side of your finances and consider both the risks and rewards to ensure you are set up for success.
Emotions are powerful but are not always the best factors to consider when making decisions. An objective third party can help you view your situation appropriately and make decisions for your individual situation.
Only Focusing on Short-Term Details
The goal here is to ensure that you are prepared for your future financial expenses. Divorce can be messy and tedious, but it’s important to nail down the details all the way to the fine print, and think of the long term. You need a post-divorce financial plan. Your life is going to look very different, and your finances will too. This includes taking an accurate (honest!) look at your budget and what your life will be like after the divorce. You will have an independent household now, and one thing that can significantly ease the transition is being adequately prepared so you can enjoy your clean slate. Set new financial goals and work with a professional to help you design a realistic plan.
Not Checking into Debt and Liability
Many couples have a joint financial strategy. Their names share titles, estate documents, credit cards, and more. Separating these appropriately and updating documentation is a key part of getting your financial life in order. Nobody wants surprise calls from creditors after the divorce, and there could be serious consequences if you fail to update beneficiaries for all of your policies and accounts. Think about what you are liable for now, and how these accounts will factor into your responsibilities in the future.
Need an advocate in your divorce for your finances? Contact our team at California Wealth Transitions today.