Divorce is a hard experience to go through. Whether it was a one sided divorce, or a mutual agreement, it’s still a difficult process. There was one point in your life they would be your person forever, but now, everything you build together is slowly coming apart.
One of the best ways to make this process as smooth as possible, is to seek emotional support through a therapist, but on the other side, for finances, you should try your best to minimize the financial damage that may come. These are the top 5 financial mistakes to avoid during divorce:
1. Rushing Through Divorce
Many people, during the divorce process, want it over as soon as possible. When people are too hasty, it may cause the division of assets to be unfair for the spouse who is more vulnerable during the divorce. The spouse that is not as vulnerable may take advantage of the other and convince them that the unfair agreement they set, is fair for the situation. Assets are confusing and take time to value, which means that to ensure a fair divorce, you want to take as much time as you need, to ensure things are the way they should be.
Refusing Mediation or Arbitration
Mediation and arbitration are good steps to take before deciding that the divorce needs to go to court, as it allows for both spouses to be more in control of the situation instead of having a judge decide on your fate. With mediation and arbitration, it keeps an open line of communication, and saves the relationship with the other spouse, which is important if children are involved. It is in your best interest to hire a Newport Beach family law lawyer who will look out for you and help you get the best deal.
2. Not Valuing Assets Correctly
Property is valued in different ways, as there is no one set way to determine how much something is worth. Especially when it is considered a “high value asset” such as property or a business.
To ensure fair division of assets, each spouse should get a valuation on all their shared assets and then have an outside party compare the two valuations and determine what is truly fair.
Some spouses may keep more than their own fair share of marital assets in a divorce by having hidden assets. Assets can be placed in foreign accounts, trusts, or even their trusted friends and family members.
The best solution to finding if your spouse had hidden assets is by having your divorce lawyer get a court order that requires documents of assets. You may also hire a forensic accountant or an attorney who specializes in this area of divorce. These solutions will make sure that you are not losing out anything you deserve, in the divorce.
3. Not Handling Retirement Funds Properly
Usually, people have their own individual retirement accounts, as these types of accounts can not be jointly owned. The amount that each individual has in their accounts may widely vary. A qualified domestic relations order (QRDO) allows retirement plan assets to be divided during fair divorce asset division. This order also makes sure that neither will have the early withdrawal penalty when they move the money out before the age of 59.5 years old.
An example when this may be the case is if one spouse is a stay at home parent who has no earned income, while the other is the one who makes money for the family. Usually the contribution limits between the two spouses are drastically different due to the different types of accounts as well as the amount they can afford to put in.
4. Disregarding Tax Obligations and Penalties
During a divorce, additional fees may incur that many people forget about when calculating how much a divorce may cost them. Usually, you will have to pay taxes on the assets you get from the settlement such as on a house or a car. You may also have to pay alimony, also known as spousal support, depending on the situation. Another form of additional payment one may need to consider is child support, depending on if you have children.
5. Losing Track of Debts
Knowing what debts you may share, as well as individually owe, is important to ensure that your own credit score does not drop due to your ex-spouses’ negligence or lack of debt payment.
A tactic to find out what debts each person has, is to order credit reports from the three major credit bureaus. This way, it will help uncover debts such as credit cards, car, student loans, as well as mortgages.
In some scenarios, if you have a joint debt with a spouse, creditors may come after you to pay the debt off. This may happen even if you did not know the debt existed, or even if the terms of the divorce was that the other spouse had to pay off the debt. In that event, you should negotiate a debt settlement or debt refinancing with your creditor or pay off all joint debts before the divorce is finalized.