Separation and divorce can have serious financial ramifications. Many divorcing individuals believe they'll come out on top or that their economic plan is bulletproof, only to end up shocked at their situation a year or more down the line.
The decisions made during divorce are crucial to a stable financial future. Here are 20 common financial mistakes to avoid during a divorce.
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Incorrectly valuing shared assets.
Accurate asset valuation is crucial in a divorce. Undervaluing or overvaluing assets can lead to an unfair settlement. Work with a professional appraiser or other financial expert to ensure all assets, including property, business interests, foreign assets, and investments, are accurately assessed.
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Missing out on your rightful share of retirement accounts.
Retirement accounts are often significant assets in a marriage. Failing to negotiate your fair share can have long-term financial repercussions. Get familiar with the terms of your retirement accounts and understand the laws governing the division of retirement accounts in your state.
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Failing to consider tax implications of asset sales or transfers.
Selling or transferring assets during a divorce can have tax implications that are often overlooked. A tax professional can help you understand the potential consequences of property ownership and other asset transfers and factor these into your financial decisions.
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Assuming that an equal split of assets is inherently fair.
Equal division of assets doesn't always mean an equitable outcome. Consider factors like income disparity, child custody arrangements, and future financial needs. Be prepared to negotiate terms that better reflect your unique situation.
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Overlooking the potential for undisclosed assets.
In some cases, spouses may attempt to hide assets during a divorce. Be vigilant in searching for undisclosed assets. Consider hiring forensic accountants if necessary to ensure a fair settlement.
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Failing to identify all shared debts.
Like marital assets, be sure to carefully evaluate all marital debts. Failing to identify all debts can leave you financially responsible for obligations you weren't aware of. Conduct a thorough review of all debts, including credit cards, loans, and lines of credit.
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Neglecting to evaluate how health insurance will change.
Post-divorce, your health insurance situation will likely change. If you were on your spouse's plan, you'll need to find new coverage. Failing to plan for this can lead to unexpected medical expenses. Consider your options to maintain coverage through COBRA, the marketplace, or employer-provided plans.
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Allowing emotions to dictate your decisions.
Emotions can cloud judgment during a divorce, leading to decisions based on anger or resentment rather than logic. Always step back and consider the financial implications of your choices. Consulting with a trusted advisor can help provide perspective.
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Settling quickly just to move on.
While it's understandable to want closure, rushing through your divorce can lead to unfavorable terms that don't adequately address your financial future. Take the time to thoroughly assess the divorce terms to ensure they meet your long-term needs.
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Refusing to accept a different standard of living.
Divorce often leads to a shift in financial circumstances. Failing to accept and adjust to a new standard of living can result in financial strain. Create a realistic plan that reflects your new situation and stick to it.
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Trying to undervalue assets before the divorce.
Some may attempt to undervalue assets to secure a larger share in the settlement. This tactic can backfire, as courts are skilled at recognizing and penalizing dishonesty. Transparency about asset values is essential for a fair settlement.
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Attempting to conceal assets.
Attempting to conceal assets is unethical and can bring severe legal repercussions. Courts take such actions seriously. Getting caught can result in losing your share of those assets.
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Underestimating your current financial obligations.
It's easy to overlook day-to-day expenses amid the legal and emotional turmoil of divorce. Create a detailed list of your current expenses to get an accurate picture of your financial situation and ensure your budget reflects your true needs.
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Not recognizing the importance of having cash available.
Having enough cash on hand is vital during a divorce, particularly for unexpected expenses. Make sure you have sufficient liquid assets to cover your needs. Do not rely solely on illiquid assets like property.
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Overlooking the impact of credit scores.
Divorce can impact your credit score, particularly if you share debts with your spouse. It's crucial to understand your current credit situation and take steps to protect it during the divorce. Monitor your credit report and consider working to establish credit in your name if necessary.
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Ignoring anticipated future expenses.
Divorce can lead to new expenses, such as legal fees, child care, and housing. Failing to plan for these future costs can strain your finances. Child support is not just about immediate needs; it's important to consider future expenses such as education and healthcare. Generate a comprehensive budget that accounts for both expected and unexpected expenses.
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Not reevaluating retirement plans.
Divorce often necessitates a reevaluation of retirement plans. If you're splitting retirement accounts, understand the implications on your retirement age and lifestyle. Work with a financial advisor to develop a new retirement strategy that reflects your post-divorce situation.
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Forgetting to update your beneficiaries and estate plans.
Post-divorce, your estate plan may need a complete overhaul. Failing to update beneficiaries on insurance policies, retirement accounts, and wills can lead to unintended consequences. Ensure all documents reflect your current wishes.
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Delaying consultation with a financial professional.
Many individuals delay seeking financial advice during a divorce, believing they can handle it themselves. However, such delays can mean missed opportunities for tax advantages, investment strategies, and better financial decision-making. The complexity of financial negotiations often warrants the expertise of a financial advisor. Engage a professional early on to guide you through the process.
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Choosing an attorney who may not have your best interests at heart.
The right attorney can make a big difference in your divorce outcome. Failing to choose someone with experience in family law and an understanding of your financial situation can result in poor representation. Take the time to research potential attorneys and select one who aligns with your needs.
Divorce is a major life event that can reshape your financial future. You can lay the groundwork for a secure financial future by avoiding these common mistakes. If you need assistance with your divorce or financial planning, we can help. Contact our New York Divorce Attorneys at 212.682.6222 or Connect Online.