Most married couples commingle their finances. They share bank accounts and pay bills and other expenses together. And while this can be a smart way to manage your money while you are married, it can make divorce a lot more complicated.
As a result, you may need to call on the help of a financial expert to avoid some costly financial mistakes during the divorce. The following are some of the most common mistakes and how to avoid them.
The first step to ensuring that assets are divided fairly is to know exactly where you stand. You should know both your own and your ex’s income, investments, benefits, etc. Oftentimes in a marriage, one spouse plays a greater role in the budgeting and this can put the other spouse at a disadvantage during a divorce. If your ex was the one that primarily handled the finances, take the time to familiarize yourself with them. And if you suspect that your spouse is hiding assets to avoid splitting them with you, make sure that you talk to your lawyer about this.
Once you are separated, it is important to get a good idea of what your monthly expenses will be for you – and if applicable, your children. Itemize all your expenses including rent or mortgage, groceries, insurance, school costs, etc. Your monthly budget will become a baseline for any spousal or child support payments.
Some divorces can be lengthy, so it could be some time between when you begin the process and when you collect your first spousal or child support payment. By putting away some money now, you can have a bit of a cushion should you find yourself in a financial emergency between now and then.
Important: Consider this as a rainy-day fund but not a secret fund. Not reporting your assets during a divorce could land you in legal trouble down the road.
Equal division of assets isn’t necessarily the same thing as fair division of assets. For example, say you and your ex own a rental property together that earns an income. You have to consider more than just the market value; you also have to consider the future income value as well as any tax implications that it might carry.
When it comes to dividing marital assets, perhaps the most emotional item on the list is the family home. But your home is more than just an asset – it can also be a big expense. Before insisting on keeping the family home, determine if you can really afford to live there after your divorce. Factor in all associated expenses including mortgage payments, insurance, taxes, utilities, and upkeep.
If you cannot comfortably fit these into your budget, consider alternatives like allowing your ex to buy you out, selling the home and splitting the money, downsizing, or renting.
During a divorce, debts incurred during the marriage are a shared responsibility, but if your ex fails to make payments on something like a shared credit card, creditors will come after you and it can severely harm your credit rating.
If possible, you and your ex should settle any shared debt responsibility before the divorce is finalized.
You know that it is important to come up with a spousal or child support agreement that will give you enough to support yourself and your kids, but how will you collect if your ex loses their job, dies, or becomes disabled and not able to work?
One solution is to ensure that your ex has sufficient life and disability insurance to provide for you should the unthinkable happen. Ensuring they have appropriate insurance can be worked into your spousal or child support agreement.
If you are going through a divorce and you need a qualified family lawyer who can help you avoid these and other financial mistakes, contact us today for a consultation.