One of the last things that you expect to happen when you get married is to get divorced, but it’s a reality for around half of married couples in the US. Divorce is a stressful time, for you, your family, and your soon-to-be ex-partner but it’s important not to allow the stress to cloud your judgement.
Divorce settlements can be messy, especially when it comes to making financial arrangements. It’s far too easy to burn-out on important matters like childcare and who will live where, that when it comes to other essential arrangements, mistakes start to happen.
As the financial decisions made in a divorce settlement will affect you and any children you have for the rest of your life, it’s essential that you don’t make mistakes where it really matters. Here are five common financial mistakes, that you need to avoid during your divorce settlement for a secure financial future:
Mistake One: Not Reading Financial Documents Carefully
Financial documents can be incredibly dull and very confusing, so it’s understandable that you may just feel like breezing over them and only focusing on the most important details. While this is easier at the time, it could spell considerable trouble later down the line when you don’t have a comprehensive knowledge of your family finances.
Before finalizing a divorce settlement it’s crucial that you read all the financial documents and make sure that you understand what they mean. It’s better to have to ring up an ask your lawyer for advice on a matter than to bypass it and end up in hot water later.
Just as it’s essential to read everything, it’s essential to make sure that you have all the information. That means that you should be digging out all your financial documents from their hiding places and making sure that your spouse is doing the same. Arranging financial matters with only half of the information you need will make everything more complicated and may result in you getting a bad settlement.
Mistake Two: Forgetting to Get Assets Properly Valued
That vase in the back of the cabinet that you picked up at a garage sale five years ago may have only been worth a couple of dollars to you then, but it could actually be worth a lot more than you might have ever imagined. Not getting your assets properly valued during your divorce could end up costing you a considerable sum and making your divorce settlement very unbalanced.
Making sure that any property that’s jointly owned, any assets of value, and pensions are properly evaluated is crucial during the divorce process, no matter how much of an inconvenience it can be. While getting your assets valued can cost a lot at the time, you could be missing out on thousands of dollars if your spouse is looking to buy your share of the assets or you’re planning on selling them and splitting the value.
Mistake Three: Being Too Emotionally Attached to Certain Assets
Just as it’s important to make sure your assets are valued properly in a divorce settlement, it’s also important not to factor in emotional value too heavily. While it you may be attached to a particular property, like the family home, or there are certain assets that mean a lot to you, emotional attachment can bring about significant financial problems.
You may want to keep living in the family home or you might want to ensure that your children can, but you need to correctly evaluate whether you can feasibly afford the upkeep of the property. Big investments, like property, can be a major drain on resources that you may not have readily available after a divorce settlement.
While it may seem that you have no other choice but to honor the wishes of your children and put their happiness first, it’s vital consider the long-term and make sure that financial security is always a key consideration when it comes to assets that you’re emotionally tied to.
Mistake Four: Not Properly Budgeting Before Settling
Budgeting and making sure that your divorce settlement leaves you financially secure is a major part of divorce proceedings, yet it’s also incredibly time-consuming and a big hassle when there are other things going on that more readily need your attention. No matter what else is happening though, you can’t afford to rush through your budgeting.
A comprehensive budget that takes into account all your living expenses, and not just those that immediately spring to mind, will make sure that you can afford to live on the alimony that you may get as part of your divorce settlement. It’s also essential that you work out a financial plan for after the divorce and determine how long the settlement will need to last you.
Not being able to keep up with your bills, honor your agreements in the divorce, or support yourself after a divorce can leave you in very hot water, so make sure that you take the time to budget properly!
Mistake Five: Not Factoring in Inflation, Taxes, or Insurance
The financial matters in a divorce run a lot deeper than budgeting, asset valuation, and going through financial documents, there are finances that need to be considered that may never even have occurred to you. Inflation, taxes, and insurance can’t be forgotten when you’re working out your divorce settlement, not if you want a fair settlement that’ll support you in the long-run.
Inflation needs to be considered in terms of future costs, like retirement plans and education for your children – things won’t cost the same in 10 years as they do now! Taxes can have a drastic impact on even very fair looking settlements, especially when investments are concerned; a 50/50 split isn’t always as fair as you might think.
Insurance needs very careful consideration, as it can have a very big impact on your divorce settlement. You’ll need to consider life and health insurance primarily, but it’s important not to overlook other essential insurances, like vehicle and house insurance. Making sure that you factor in insurance cover is crucial for the future of your family.
Avoiding Financial Mistakes in Divorce Settlements
Divorce settlements can be a nightmare to arrange but if you try to skip ahead to the finish line too eagerly, your financial situation and that of your children could end up being very difficult to manage.
To avoid the common financial mistakes made in divorce settlements, it’s vital to take your time, get a comprehensive understanding of your finances, and approach the future with a realistic mind and an understanding that you might not be able to afford everything.
At every stage, where you’re unsure of what you should be doing or what’s right for your family, it can help to seek the advice of your lawyer and make sure that you’re on the right track to getting the best from your settlement. A little extra caution now could save you a lot of extra worry in the years after your divorce.