Going through a divorce is undoubtedly a challenging time, both emotionally and financially. Amidst the emotional turmoil, paying close attention to your financial decisions is crucial to secure your future. Here are some common financial mistakes to avoid during a divorce:
Understand Your Financial Situation
You should take the time to assess your assets, debts, income, and expenses. Understanding your financial standing will help you make informed decisions throughout the divorce process. For example, you could create a spreadsheet listing all your assets, liabilities, and monthly expenses to view your financial situation comprehensively.
Consider Tax Implications
Dividing assets and financial matters during your divorce can have significant tax consequences. Be sure to understand the tax implications to avoid unexpected liabilities. For instance, if you decide to keep the family home, you should consult a tax professional to understand the potential tax implications of that decision.
Update Your Estate Plan
Remember to update your wills, trusts, and other estate planning documents after your divorce. Failing to do so can lead to unintended consequences and conflicts among your heirs. For example, you may want to update your will to remove your ex-spouse as a beneficiary or change the guardianship provisions for your children.
Evaluate Home Ownership
While keeping the family home may seem appealing, consider the ongoing costs like property taxes and maintenance. Make a decision based on financial considerations, not just emotions. For instance, calculate the monthly expenses of keeping the home and compare them to your projected income to determine if it’s financially feasible.
Assess Long-Term Impact of Asset Division
Consider the long-term growth potential and risks associated with each asset during the division process. Consider how each asset will impact your financial future. For example, if you can keep a retirement account or a rental property, evaluate which asset is likely to provide better long-term growth and income potential.
Review Insurance Needs
Ensure you review and adjust your insurance policies, including life, health, and disability insurance, to guarantee adequate coverage post-divorce. Protect yourself and your loved ones financially. For example, you may need to obtain individual health insurance coverage if you were previously covered under your spouse’s plan.
Secure Support Payments
If you are entitled to spousal or child support, make sure these payments are secured through legal means to prevent financial strain. Relying solely on goodwill may lead to missed payments. For example, you could have the support payments automatically deducted from your ex-spouse’s paycheck or bank account.
Establish Individual Credit
After your divorce, it’s essential to establish and maintain your credit. Open individual accounts in your name and maintain a good payment history to build your credit score. For instance, you could open a credit card in your name and pay the balance in full each month.
Make Rational Decisions
Avoid making financial decisions based on emotions or spite. Focus on long-term financial goals and make choices that will benefit your future financial well-being. For example, instead of fighting to keep an asset out of spite, consider the long-term implications of that decision on your financial stability.
Seek Professional Help
Divorce can be complex and emotionally charged. To navigate the financial aspects of divorce effectively, seek advice from financial professionals, attorneys, and therapists. For example, you could hire a certified divorce financial analyst to help you understand the long-term financial implications of various settlement options.
By avoiding these common financial mistakes and taking proactive steps to manage your finances during your divorce, you can set yourself up for a more stable economic future.
Excerpted from Bounce Back: The Ultimate Guide to Financial Freedom by Lynnette Khalfani-Cox.
