Divorce is more than just emotional separation. It’s also a financial one that shines a spotlight on just how intertwined two people’s lives can become when they’re married. As a result, it’s easier than most people think to overlook important financial details during divorce proceedings.
Common divorce pitfalls can include missing hidden assets, failing to understand shared liabilities, and not thinking about post-divorce budgeting early enough. Mistakes like these can lead to lasting financial consequences that can be difficult to impossible to undo later.
For that reason, professional divorce financial planning is highly advisable. The right guidance and expertise can make the difference between a secure financial future and being caught completely off guard.
Understanding Your Financial Situation
The first order of business when it comes to divorce financial planning is to develop a thorough understanding of your financial situation. Let’s take a look at the key factors to consider.
Assessing assets
Fair asset division in divorce starts with a comprehensive inventory of both marital and non-marital assets.
Marital assets are any assets acquired while you and your spouse were still married, regardless of whose name is actually on the title to the property. Common examples include houses and cars, but also retirement accounts, business interests, stocks, and similar options.
Also sometimes called separate assets, non-marital assets are assets owned before the marriage. They can also be gifts or inheritances that were only intended for one spouse.
During this phase, it’s critical to obtain accurate divorce asset valuation of all major properties, including real estate, investment portfolios, and so forth. Failure to do this can mean lopsided asset divisions that don’t reflect actual value. This is especially the case when one partner is more financially astute than the other.
Evaluating liabilities
Proper assessment of shared and individual debts and other liabilities is also important during a divorce. Common examples include joint credit accounts and car loans. But even options like co-signed student loans should be considered.
Even in cases where only one spouse was responsible for associated spending, the debt may still be considered shared in the eyes of the law. This being the case, a proper understanding of who is liable for what and how the law will divide that liability is essential.
It’s also worth considering that although the court will officially assign responsibilities, creditors aren’t necessarily bound by those rulings. This means either spouse could potentially be held liable for joint debt, even once the divorce is complete.
Be sure to thoroughly review credit reports, account activity, and credit report information to better understand your risk exposure and plan.
Common Pitfalls in Divorce Financial Planning
Now that you understand how both assets and liabilities factor into the picture, let’s dive into some common divorce pitfalls to watch out for moving forward.
Overlooking hidden assets
Failing to properly identify hidden assets in divorce is potentially one of the most impactful mistakes you could make. Hidden assets can include examples like:
- Undisclosed investment accounts or crypto holdings
- Real estate and other business interests
- Deferred compensation and stock options
- Valuable physical assets, like art or jewelry
If you suspect hidden assets may be a factor in your divorce, it’s advisable to contact a forensic accountant with experience in divorce cases.
Failing to update financial plans
Your entire financial landscape will shift significantly after divorce, so it’s vital to revisit your current financial plans as soon as possible. This means taking a close look at your budget, investment goals, insurance coverage, retirement strategy, etc.
Be sure to update the beneficiary information attached to your estate documents, retirement accounts, and life insurance policies, as well. Otherwise, you may unintentionally leave estate assets to your ex-spouse instead of your children or other intended loved ones.
Not creating a divorce budget
Never simply assume your existing budget will still suffice post-divorce. Divorces can bring sweeping financial changes due to reduced household income, legal expenses, and shifts in living arrangements.
Thorough post-divorce budgeting now can help keep you in control and avoid unnecessary debt. For example, adjusting spending in advance helps you build financial buffers and good habits that benefit you moving forward.
Legal Professional Impact
Court judgments and other legal proceedings often heavily influence divorce outcomes. Plus, each state has its own laws and approach to property division in divorce, with some adopting a strict 50/50 approach and others following equitable distribution guidelines instead.
Working with a seasoned divorce attorney with experience in cases like yours can be a game-changer. They can also assist with the implications of child support, alimony, tax considerations, and child custody.
Seeking Professional Guidance
Divorce is never easy, but know that you don’t have to go through it alone. Assembling a team of experienced financial advisors, attorneys, tax professionals, and more early on can give you the confidence and clarity you need most at this challenging time in your life.
For example, professionals can help you:
- Better understand your tax liabilities
- Identify and safeguard your assets
- Advocate for your interests during settlement negotiations
- Offer financial advice for divorce that helps you move forward in confidence
Divorce may mark the end of one chapter, but it’s also the beginning of the next, and you deserve to step into it with your peace of mind and financial security intact.
Whether you need assistance with post-divorce budgeting, understanding the legal implications of your decisions, or something else entirely, MyStages is here for you every step of the way. Contact us today to schedule a consultation.
