Going Through A Divorce? Avoid These Financial Pitfalls

Divorce is never easy, emotionally or financially, and while most people expect the emotional ups and downs, not everyone realizes how much is at stake for their financial future. As you go through the divorce process, there are many pitfalls that can come back to haunt your financial future. However, with deliberate reflection and a good strategy, you can avoid the most common mistakes and work toward a more secure future post-divorce.

But to do this, it is important to recognize the most common financial mistakes that happen during divorce, and how to avoid them.

Slow Down, Divorce Is Not A Race

Usually, neither party wants a drawn-out divorce, especially when you are both still living together and willing to move on. But rushing through the process can mean missing out on what you deserve: Marital assets entail more than just cash and property; they also include investment accounts, retirement funds, business ownership, and personal belongings. Racing through a divorce may allow one party to conceal assets the other is entitled to or an unfair valuation of others.

For example, it is not uncommon to reach a settlement that undervalues one party's stock options, leaving the other at a financial disadvantage. Therefore, it is important to ensure that each asset is properly appraised, recognized, and equitably divided.

Complex Assets

Speaking of stock options, some assets are anything but simple, and other examples include business interests, art, and intellectual property. These unique assets require expert evaluation to properly value and divide. So do not assume the value of something during a divorce without a proper valuation by an unbiased third party.

Letting Go Of The Shared Home

The family home is often an emotional topic, especially when children are involved. But keeping the house is not only about memories; it’s also about the costs: The mortgage, taxes, insurance, maintenance, repairs, utilities, and HOA fees can add up quickly.

We’ve seen clients fight to keep the house for sentimental reasons, only to become overwhelmed and have to sell when money runs short. Sometimes, letting go is the smarter choice, even when it hurts emotionally in the short term.

Equitable Financial Support

Support payments, whether child or spousal, help maintain the other party's financial stability. Agreeing to less support than you are entitled to might lead to financial ruin later and to an inability to renegotiate what was necessary and proper up front. A good financial advisor and attorney can help ensure you receive your fair share of the household income from the marriage now and into the future.

What About Retirement Accounts And Taxes?

Retirement accounts have complex rules, and if you are unaware of the intricacies of dividing these accounts, you could end up in a worse financial situation for one or both parties.

For example, employer-sponsored retirement accounts have special tax treatment that, if ignored, can lead to a hefty tax bill and potential penalties. So, get professional guidance from a financial advisor before you make a move.

Oh, and about taxes, not every asset is taxed the same; some come with special tax benefits, while others may have unforeseen future tax bills. For example, we have seen one party take the house, only to be blindsided by capital gains down the road. Therefore, it is important to consult an accountant before signing any agreement so you do not incur unforeseen taxes down the road.

Seek Professional Help

Trying to handle everything by yourself often leads to expensive mistakes and extra stress. We have seen many people let emotions or online searches guide their choices, only to regret it later. Getting professional advice is an investment in your future, not just another expense. A good divorce attorney and accountant can help you see around hidden corners and avoid nasty surprises.

Closing Thoughts

Divorce is a difficult process emotionally and financially, but it does not have to ruin your future. If you avoid these common mistakes, rely on experienced professionals, and keep your attention on the big picture, it is not easy, but with the right steps, you will come out stronger and much more prepared for what comes next.

At Lundeen Abrams Advisors, we have helped our clients navigate the financial intricacies of divorce as part of a well rounded team that includes accountants and attorneys. If you and your former partner are beginning to navigate a divorce and want support from a financial advisor, we are here to help. Please reach out to us today so we can set up an appointment to learn more about the entire picture and how we can fit into the process.

We look forward to speaking with you soon.