For too many people, a divorce can have significant financial repercussions. Studies have shown that a majority of divorced people have reported a drop in wealth, and that older divorced Americans are more likely to be in poverty.
Often, people going through a divorce just want the whole thing to be over with as quickly as possible. Further, they tend to make decisions based on emotion. That's why it's essential to have experienced legal and financial professionals on your side who can help you consider the long-term financial impact of your decisions.
Following are a few of the all-too-common, potentially costly mistakes that people make during a divorce:
-- Ignoring the tax ramifications. What may look like a valuable asset to get in a divorce, such as the house, may cost you more in taxes than another asset, such as a retirement account, of the same monetary value.
-- Not separating your accounts and debts. If both of your names are on an account, your spouse can empty them. Meanwhile, if both of your names are on liabilities like the mortgage, car loans or credit cards, you can get stuck making the payments if your spouse doesn't. Your credit rating can take a big hit. This is one of the first things you should discuss with your family law attorney when you see divorce in your future.
-- Being unaware of assets. It's essential to know exactly what assets your spouse has, including those that may pay off in the future. Don't count on him or her to come clean about these. In some cases, people legitimately forget about assets such as veterans' benefits or pensions from previous jobs. Forensic accountants can help find these. You want to know what you're dealing with when you negotiate a settlement.
It's understandable that many people are hesitant to spend the money and time needed to avoid these mistakes. However, the financial benefits can far outweigh the costs. Many financial mistakes made during a divorce can't be undone and can have lifelong ramifications. If you need help finding a good financial advisor, your family law attorney can likely recommend one.
Source: CNBC, "Breaking up is hard to do: Protecting assets in divorce," Kelli B. Grant, Jan. 17, 2016