4 financial mistakes divorcing spouses should be careful to avoid
Divorcing spouses should be careful to avoid overlooking assets, overestimating an asset’s worth, delaying financial planning or thinking too emotionally.
Divorce is often challenging financially, even when it is handled relatively fairly and amicably. The involved legal costs, loss of dual income and increased cost of living alone can create a burden for almost anyone. However, there are also several missteps that spouses can make during divorce that worsen these financial issues. It’s critical for people getting divorced in The Woodlands to understand and avoid these common mistakes.
1. Overlooking assets
Many divorcing spouses don’t fully understand their rights or aren’t aware of all of the assets that should be considered during the settlement. Since Texas is a community property state, all property obtained during marriage, besides gifts or inheritances, is considered marital. This property is subject to equitable division between spouses at the time of divorce.
Forbes notes that it’s critical for spouses to have an accurate inventory of all of their marital assets, since hidden or overlooked assets can’t be properly divided. Spouses also should be alert to the possibility that the other spouse may attempt to conceal separate or marital property. People who think such concealment is occurring should consider working with a forensic accountant or an attorney who specializes in this area to search for any hidden assets.
2. Postponing financial planning
It can be difficult for divorcing spouses to imagine life after the separation, and financial concerns can be even harder to think about. However, it is critical for spouses to evaluate their future income and expenses before the divorce is finalized. Spouses should take all of the following into account:
- Divorce-related expenses. These include one-time costs, such as court fees, and ongoing costs, such as child support.
- Basic living costs that may increase after the divorce. Housing, insurance and projected retirement expenses are typical examples of costs that are higher for single individuals.
- Costs that were previously covered or made available through the other spouse. These might include health insurance coverage and retirement account contributions.
After assessing these expenses, spouses will know what kind of settlement they would benefit most from. For example, spouses with less financial leeway may need to seek post-divorce maintenance or assets that offer greater short-term liquidity. Spouses in stronger financial standing may want to pursue assets that will incur greater value in time, such as retirement savings.
3. Failing to evaluate true worth
Forbes and USA Today note that the apparent value and real worth of a marital asset are often distinct, but spouses frequently fail to appreciate this difference. For example, the value of real property, such as a house or a car, can be reduced by maintenance, insurance and tax costs. Similarly, fees, taxes and projected gains all determine the long-term worth of savings or investment vehicles. Spouses should be careful to assess hidden costs and understand what each asset is truly worth.
4. Thinking emotionally, not strategically
According to USA Today, it can be easy for spouses to get caught up in their emotions and make financial decisions that can be harmful in the long run. For instance, a spouse may fight for ownership of a house that he or she can’t afford, or a spouse may incur excessive costs by engaging in protracted litigation. Spouses should be careful to keep sight of their financial needs and long-term goals when making any financial decisions.
Unfortunately, avoiding financial missteps can be difficult even for the most careful and informed spouses, which is one reason that legal representation is often advisable during divorce. An attorney may be able to help a spouse understand his or her rights and pursue the most favorable settlement possible.