Every day we hear of marriages ending from our cow-workers, friends and family members. It’s a harsh reality, but around half of all marriages these days end in divorce. In 2015 there were approximately 1.2 million divorces filed, making divorce one of the most financially devastating times in an individual’s life. To help those who may be thinking of divorce, or currently going through one, I put together my top 5 financial mishaps that occur throughout the divorce process.
Mishap #1: Not having enough liquid savings.
The old adage of “cash is king” is pretty accurate for those going through a divorce. There will be expenses that may end up costing you thousands of dollars ranging from legal fees, new living expenses, therapist bills and more. You need to be aware that getting a divorce will be very costly, and having sufficient savings is going to help you feel more comfortable as you go through the process. The last thing you want to do is pull money from retirement accounts or sell off personal possessions in order to pay your attorneys bill.
Mishap #2: Ignoring Taxes
When you go from “we” to “me” you are changing your entire tax situation. Selling certain assets before the divorce may make more sense than holding onto them and including them in the separation of household assets. Also, you want to make sure the portion of the assets you are receiving is a blend that helps you maintain your current lifestyle while also protecting your future financial goals.
For example: A husband and wife have $1,000,000 of total assets. One spouse is to receive $500,000 blended between retirement accounts and the house, while the other spouse receives mostly taxable assets. On the surface each spouse gets half of the total, but which spouse do you think may be in trouble? The spouse that receives the house and retirement accounts may realize they don’t have the funds to cover their current living expenses since everything they receive is tied up in retirement accounts. So it is important to understand that a better separation of assets is a blend of all the accounts rather than just all of one or the other.
Mishap #3: Missing Assets
Believe it or not some accounts may not be as visible as others. In going through a divorce it is not uncommon to see one spouse try to hide income or assets in order to avoid losing them to their ex. A great way to make sure all accounts have been accounted for is to review your past year’s tax returns. On a tax return you can see all of the accounts that a person holds since they have to report them to the IRS. Things to look for would be interest and dividends being paid by brokerage accounts, rental property income, depreciation of business assets and more.
In addition to the tax return, another great place to look at is insurance documents. Sometimes you may uncover a random boat, car or other item that is being covered that you never knew existed.
Mishap #4: The Value of Not Developing Your Career
Say you went to school before getting married and had this great vision of being a nurse or therapist, but after marrying your spouse it was agreed upon that you would stay at home and raise the kids since your spouse had more potential with their career. There is value in that decision since your sacrificed your ability to develop professionally in order to allow your spouse the opportunity to pursue their career ambitions. After divorce, you will probably need to figure out a way to support yourself and your children. Divorce is an excellent time to get some career counseling at the local job center, university, or community college. Prepare for the expense of tuition and books while you get your career on track.
Mishap #5: Not Seeking Professional Help
You got married because you loved your spouse, but now that you are separating it’s time to be a little selfish and put your interest first. The majority of the time individuals simply go with the flow because they do not want to hurt their ex-spouse. The problem with this is that you need to understand what you’re entitled to, and shouldn’t make unnecessary concessions because you feel bad for the other spouse. By seeking professional advise early on you are empowering yourself to not be a victim and to receive a fair and equal distribution of household assets.
Don’t be afraid to ask for rehabilitative maintenance support if you need it. Understand that you need child support and the courts have a specific formula used to determine how much you will receive. Know that you spent your life working together towards a common goal, and now you’re entitled to your fair share. The important thing is that you receive competent professional advice to help you navigate through this hard time, and in the end you will be ok.