Six Financial Perils of Divorce

Divorce. It is a single word that turns a married couple’s world upside down. Each year in the United States, nearly three million people go through the #divorce process. Unfortunately for many of these individuals, their involvement in the marital finances was limited – or even non-existent. While divorce is financially trying for everyone, it hits these individuals especially hard.

That’s why it is important to understand the most common financial perils that come along with divorce. Knowledge is power, and being in the know can help you get on solid footing during and after your split.

Not Identifying All Assets

For a non-financial spouse, understanding the assets the couple owns can be a challenging proposition, especially if his or her spouse has been secretive with financial management during the marriage. It is no surprise that assets are often overlooked by the non-financial spouse during divorce. Yet even if an asset is unwanted, it has value and can be traded for another asset the non-financial spouse may want. For this reason, it is critically important that all assets be identified early on in the divorce proceedings, even if this means hiring a forensic accountant (a sort of financial detective) to uncover them. Before the divorce begins is an excellent time to start collecting paystubs, bank and investment account statements, insurance policies and any other documents related to finances.

Not Putting Up a Fight

When it comes to property division in divorce, the general rule of thumb is “equitable division.” While this doesn’t necessarily mean equal, it does mean that each spouse is entitled to his or her fair share of the assets amassed during the marriage. Often times, the non-financial spouse is too intimidated or exhausted to fight for his or her rightful share. Yet to ensure long-term financial security, each spouse must stand up and fight for what he or she deserves. Once the divorce is over and the property divvied up, there is no going back to get more.

Choosing Panic Over Patience

The divorce process seemingly brings with it a crisis around every corner. Whether it is an unexpected bill, escalating legal fees or a stubborn spouse who challenges every decision, there is no shortage of things that will keep a divorcing person up at night. Countless hours are spent tossing and turning, worrying about all the “what ifs.” Instead of letting these worries become all-consuming – and making poor financial decisions based on fear rather than logic – it is important to find some means of stress relief during the divorce. Whether it is yoga, kickboxing or simply writing down your fears and revisiting them in the clear light of day, allowing panic to take control during a divorce will only have a negative long-term impact.

Mixing Money and Emotions

Divorce brings with it an emotional roller-coaster, especially when it comes to marital assets and property division. While it may seem like a good idea to keep the marital home out of spite or nostalgia, any decision on which assets to demand in a divorce should be made on each party’s long-term best interest – not revenge. While the divorcing parties may loathe each other, transferring those feelings to the “nuts and bolts” of issues like property division only benefits the lawyers. At the end of the day, fighting just to fight will only deplete the marital estate.

Not Understanding Tax Consequences

A major component of any divorce is dividing up the marital assets. Real estate, retirement accounts and investments each come with their own set of pros and cons, especially when it comes to liquidity and taxes. For example, it may be tempting to want the marital home, but that may not be the best financial decision. Maintenance and upkeep are often underestimated, and it can quickly become an albatross rather than an abode. Likewise, accepting a retirement account instead of cash could tie up assets for decades or more. It is important to consult with an accounting and tax professional to ensure that the full implications – both short- and long-term – of any final property division are understood.

Failing to Get Solid Professional Advice

While it may be tempting to save a few (thousand) dollars by trying to go it alone in a divorce, this is usually a very unsound financial decision in the long run. Divorce can be a very complicated process, and without sufficient legal and financial knowledge rights can be unwittingly given up. Hire the best attorney you can afford – not the cheapest. The old adage, you get what you pay for is usually true. Likewise, consider a forensic accountant if you believe assets are being hidden. A divorce financial professional can also be one of the best investments to secure a solid financial future.

To learn more about how a Divorce Transitional Support Advisor can help you or your client regain financial stability after a divorce, please visit our website.