When a marriage ends in divorce the finances of the former spouses will often take a hit.
Making mistakes during the breakup can make the financial penalty for divorcing even worse. Here are eight common mistakes to avoid when married couples part ways:
Emotions can be raw when couples split up and that can lead to the temptation to seek revenge. Hiring lawyers to pursue a bitter marital battle, however, will be costly and will cut into the eventual financial settlement. It’s best to work towards an amicable divorce.
Mistrust is common during divorce proceedings. One area of deep mistrust revolves around money. It can be natural to wonder if a spouse has hidden assets and/or income.
Make copies of all your investment and bank account statements and review them carefully. If you have a home equity line of credit, look for any unexplained withdrawals. You’ll also want to make sure that there have been no unexplained withdrawals from any custodial accounts for your children.
When the couple owns a small business or a spouse is self-employed, the need to be diligent about assets and income can be even more important. A spouse can hire a forensic accountant to explore whether assets and income are being hidden.
When dividing assets, make sure you understand what the tax consequences. For instance, let’s assume that one spouse wants to take the taxable investment accounts and the other spouse plans to take retirement accounts that represent the same nominal amount. The transfer of retirement assets to the soon-to-be ex-spouse could trigger taxes if they are not rolled into an IRA, which would need to be compensated for in the settlement.
Couples can focus so much on splitting up assets that they don’t think about what could happen to the money in the future. When a marriage ends, make sure to change the beneficiaries on your retirement accounts and also update your will.
Beyond estate documents, be sure that titles are transferred for any assets previously held in both names such as cars and investment accounts. The former partners need to change all their passwords for their investment accounts, social media and email.
Divorce settlements sometimes include a requirement that a former spouse purchase a life insurance policy that names the ex-husband or wife as the beneficiary. If that is the case, the beneficiary should ask for regular confirmation from the insurance company that the premiums are being paid and that the beneficiary hasn’t been changed.
In the heat of the moment, don’t say things that you will regret later. Don’t badmouth your former partner in front of your children. This will only make the acrimony worse and hurt your kids. You also want to be circumspect with your actions and conversations to avoid hurting your prospects during the divorce proceedings.
A person’s financial health can plummet after a divorce. Well-meaning friends and family may want to give you advice about your financial life, but resist the temptation to follow their lead. Instead seek out a fee-only Certified Financial Planner. A qualified advisor can help you create a plan for your new life that will put you on the path to financial security.