Filing for divorce can be a complex and emotional process. Sometimes, the emotions of the situation can cloud judgment and make it difficult to make thoughtful decisions.
Unfortunately, making mistakes when it comes to finances can cause issues in the future. Knowing some of the most common financial mistakes when filing for divorce can help you to avoid them.
Not understanding your assets
A common financial mistake made during a divorce is not understanding one’s assets. It’s essential to have a comprehensive knowledge of all marital assets, including bank accounts, investments, retirement accounts, real estate and personal property. Not knowing the full extent of your assets can lead to an unfair division of property. Gathering all financial documents and seeking guidance from a financial advisor or accountant is advisable.
Underestimating expenses
Post-divorce life often changes living standards due to the separation of incomes and additional expenses like legal fees, child support or alimony. Many individuals fail to realistically assess their post-divorce financial needs. Creating a detailed budget that accounts for all future expenses is crucial to ensure financial stability. This includes costs related to housing, utilities, food, insurance and any debts.
Ignoring tax consequences
Divorce can have significant tax implications, which are often overlooked. Decisions regarding the division of assets, alimony and child support can affect your tax liabilities. For instance, receiving the family home might seem advantageous, but it can come with high tax responsibilities in the future.
Failing to consider insurance needs
You should reassess your life, health, auto and home insurance needs. You might need to obtain new coverage if you were previously covered under your spouse’s policy. Additionally, if you’re receiving alimony or child support, consider purchasing a life insurance policy on your ex-spouse to secure these payments in the event of their death.
Knowing the most common mistakes will allow you to avoid them. Seeking personalized legal guidance can also provide you with insight that can help you to avoid potentially consequential missteps.