Potential Financial Mistakes To Avoid During a Divorce
There are approximately 100 divorces every hour in the United States. Divorcing couples, however, often fail to consider many short and long-term ways that divorce can impact their financial future. Many couples feel compelled to rush through these substantial financial decisions simply to end a marriage as quickly as possible. It is important, however, to reflect upon the various potential financial mistakes that couples can make during a divorce, which include the following:
- Couples Actively Undermine Each Other. During a divorce, couples often vow to take revenge against each other and choose to contest every issue during a divorce which increases the litigation costs. Couples should not allow emotions to decide how a divorce is handled.
- Failure to Consider The Whole Picture. Many couples consider only a couple of issues like house ownership or child custody during a divorce. Couples often fail to consider various financial aspects, including tax requirements and elements of retirement planning. Liquidating some assets can also lead to substantial taxes in the future.
- Focusing Too Much On House Ownership. Couples during a divorce often place too much emphasis on house ownership. Ownership of the house, however, requires consequences that are not immediately available, including tax ramifications.
- Inability to Consider Real Costs. Couples often only consider the current value of investments without considering the real costs of liquidation. Selling property can result in capital gains taxes, which can result in unforeseen financial consequences. A divorce settlement should include making sure that each spouse leaves the marriage with the same dollar amount of assets and liabilities.
- Improper or Unrealistic Budgets. Before agreeing to a financial settlement, both spouses should fully understand what living expenses will include after a divorce. Adequate and realistic post-divorce budgets should include the cost of food, health care, housing, income and property taxes, insurance, schooling costs for children, transportation costs, and utilities.
- Lack of Insurance Consideration. Health, life, and automobile insurance considerations can greatly affect various aspects of divorce, which can cause serious financial results. The continual cost of health insurance coverage is often expensive but overlooked. Both parties must understand the exact financial implications of divorce to understand the potential consequences of insurance-related costs.
- Not Adequately Providing For Retirement Benefits. Retirement benefits include Social Security in addition to other benefits and savings. How retirement benefits are handled results in substantial tax consequences.
- Not Properly Paying Attention to Debt and Credit Issues. Some individuals hide debt from spouses. It is important that spouses obtain copies of credit reports early in the divorce process to ensure that both spouses have a full understanding of credit-related issues.
- Parties Do Not Follow Settlement Terms. After the terms of a divorce have been reached, the parties must make sure that the terms of the divorce settlement are faithfully executed which includes making sure that all joint debts are entirely paid off and that credit card accounts are closed.
At Conner & Lindamood, P.C., our Houston attorneys understand all of the ramifications that result from divorce and are experienced at making sure that all issues from a divorce are properly handled. If you are going through a divorce, do not hesitate to contact our firm today.