Ending a marriage can be hard, no matter what your age or your income bracket. However, the higher your income and the greater your assets, the larger the potential errors you can make.
Some of the most common financial mistakes that people make during a divorce include:
1. Jumping at what seems like an easy solution.
If there’s $100,000 sitting in your spouse’s pension plan and $100,000 in equity in your home, it might seem sensible to let your spouse keep the whole pension plan while you keep the house. That’s ignoring the possibility that the housing market could crash (again) or the problems you might have accessing that equity in the future.
Get in touch with a financial advisor about any proposed settlement offer from your spouse. You need to at least be aware of the pros and cons before you make an agreement.
2. Trying to hold onto something that could be a burden.
Usually, the number one thing that people try to hold onto in a divorce is their home. That’s often a mistake.
Ask yourself if you’re reacting emotionally to the divorce and trying to hold onto the home out of pure sentiment. You may not be in a financial position to keep the house up, make necessary repairs or even keep the house payments and taxes going after your divorce.
3. Forgetting how taxes can affect your money.
Nothing is really yours until the Internal Revenue Service takes its cut. Make sure that you completely understand the tax liabilities you’ll have with any financial settlement.
How will pension disbursements be treated? If you sell a property, will you owe capital gains taxes? Your attorney may have some idea how things will work, but you need a tax professional’s advice once you know the specifics of a proposed divorce settlement.
4. Dragging issues out in court for far too long.
Litigation is expensive, so consider carefully how much you want to argue over possession of the artwork or fine china. Make sure that your emotions — including your anger at your spouse — aren’t damaging your wallet.
If you have any doubt about whether a divorce settlement is in your best interest, don’t hesitate to talk over your concerns with your attorney. Your future is at stake, so be completely comfortable with any agreement you make.
