Financial Pitfalls to Avoid During Divorce
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Emotionally, divorce is one of the most demanding challenges most of us will ever face. But separating from a partner isn’t just tough on our emotions and mental health; it can also pose all sorts of problems regarding our finances.
Finances can be hard hit by the cost of legal advice and filing fees. It varies by state, but on average, getting divorced in the U.S. costs approximately $15,000. When you add to that the cost of obtaining and moving into separate housing and surviving on a single income, it can be very challenging.
But as usual in life, there is an upside. Divorce can be a time to downsize, sharpen your pencil, figure out what you really need, and ultimately gain more control of your finances.
And if you know what NOT to do, you can spare yourself falling into some difficult pitfalls.
Here’s our list of pitfalls to avoid when figuring out your finances during a divorce.
1) Not Protecting Your Credit Score
A mistake made here can have lots of ramifications. While dividing your credit card debt or settling mortgage payments, keep your personal credit score top of mind.
The first thing to do is order a breakdown of your credit score. This reveals what you owe yourself, as well as debts you hold with your spouse. Try to pay off these debts now, because worrying after the divorce that your former spouse isn’t paying their share is no fun.
If you do need to work on repairing your credit rating, consider partnering with a reputable company.
2) Not Tracking Expenses
When you begin to realize that your marriage probably isn’t going to make it through, start keeping track of your expenses. General categories to work with are:
It would be wise to begin digging into several years’ worth of your old credit card statements and add things up that fall into the category of recurring expense. This might come in handy for your attorney as you decide how to split your assets—and debt. It will also show how child and spousal support should be divided.
3) Making Legal Changes Without Telling The Court
Don’t change your will or the beneficiaries of your financial instruments. That will be done during your legal proceedings. The courts will not look favorably on taking your finances into your own hands and making these changes yourself. In fact, the courts have been known to cite people with criminal contempt charges for doing this.
4) Spending Large Amounts
Don’t fall into the trap of worrying about how much money you’ll have after the divorce and start making big purchases as a result.
You might be unsure how you’ll afford presents for your kids, or a vacation, after your divorce. But resist spending large amounts of money before you divorce. The courts will not look indulgently on any unusual spending habits in the time before you officially split.
5) Not Organizing Your Documentation
Start to organize your financial documentation: tax returns, pay stubs, credit card statements.
Your lawyer is going to ask for them. Having them organized will make things less stressful, and it will help speed the process up.
6) Not Paying Off Your Credit Cards
Married couples share the responsibility equally of your joint accounts. If you don’t close these accounts as soon as you separate, you’ll still share the responsibility. So, if your ex-partner runs into debt, it will affect your credit score as well as theirs.
You should also notify your joint creditors, in writing, that you and your partner have divorced. Ask them to close the accounts once the balance is paid off. That way, there’s no temptation for an ex-spouse to use or abuse them.
7) Not Researching Your State’s Divorce Law
Familiarize yourself with the divorce laws in your state, and start as soon as you think a divorce is quite possible.
State law guides the court in deciding your divorce and finances. For example, if you live in a ‘community property state,’ everything you’ve acquired during your marriage will be considered joint property that belongs to you and your partner equally. These states include:
- New Mexico
8) Overlooking Your Tax Implications
Divorce affects the tax you and your partner will have to pay once you’ve separated. There are all sorts of tax-related issues you’ll have to solve, from whether your attorney fees are tax-deductible to which of you will get the tax exemption for your dependents’ child support.
Become aware of all the tax issues that will probably arise after your separation. Taxes will affect your income and outgo.
9) Seeking Financial Revenge On Your Ex
Divorce can be highly emotional, and if the split isn’t amicable, it can be tempting to seek revenge on your ex, primarily through money.
People sometimes sell their ex-spouse’s belongings or refuse to be transparent about their finances. But the courts do not approve of people’s attempts at revenge and have been known to penalize the perpetrator when dividing assets or even custody.
10) Being Too Emotional
Just as you shouldn’t lie to your partner or the judge when it comes to sorting everything out, you shouldn’t lie to yourself. Be aware of what you’re feeling. If you feel resentful towards your spouse, you could be in danger of convincing yourself that you don’t want to touch their money. Or, you might have the impulse to take as much as you can and run.
Try to stick to facts. Know what you’re entitled to. Don’t let your emotions cloud your judgment. Instead, be honest with everyone involved, including yourself, about your new financial situation. If you can foresee that you’re going to struggle, make sure that your pride doesn’t stop you from fighting for what you’ll need in the future.
Separation and divorce are complicated processes. By avoiding financial pitfalls, you can emerge from the divorce ready to build a better future.
Contact a Wall Township, NJ Finance, and Family Law Attorney to Reach a Positive Agreement between Parties
Divorce is a difficult situation, but a good lawyer knows how to work toward your best outcome. Here at Bronzino Law Firm, LLC, we have the experience and expertise to work things out well for you. To learn more, you could read about our skills at creating Equitable Distribution.