6 Common Financial Mistakes to Avoid During Your Divorce
Anyone going through a divorce wants the process to go as smoothly as possible, especially when it comes to the cost. Unfortunately, many people make serious financial mistakes as they begin the divorce process, and those financial decisions likely come back to haunt them later on. Divorce is all about hard choices and going through the details of your finances can leave you feeling overwhelmed and confused.
However, the financial decisions you make during your divorce can contribute significantly to your future economic situation, so it’s important to handle every step with care. To avoid dealing with serious financial issues in the future, find out what common divorce mistakes you should avoid and why.
Some of the most common financial mistakes people make during divorce include:
1. Don't Overspend Your Finances
One of the first things you should do after you file for divorce is to sit down, assess your finances, and set a strict budget. Do not make the mistake of assuming that your financial situation will not change during or after your divorce.
Here are some tips on how to approach your financial planning:
- Carve out some time to evaluate your income and your expenses
- Estate potential divorce costs
- Set a budget for the upcoming months
As the future becomes clearer, you can adjust this budget accordingly.
2. Don't Forget About Shared Debts
It isn’t just your assets that will be subject to division during your divorce. Any debts you and your spouse accumulated during your marriage can be divided between the two of you during your property division.
To prepare for this, make sure you take stock of your shared debts, including:
- Credit card debt
- Auto loans
- Private loans
- Other types of debt.
3. Don't Value Assets Based on Emotions
In order to divide your assets fairly, you need to know the actual value of your property. Many individuals make the mistake of assuming they know the value of their assets based on their purchase value or based on their personal significance. However, basing your decisions on your own estimations can lead you to underrate or overestimate your assets, making your property division unfair.
Also, if you put too much stock on personal or sentimental value, it could make asset division very difficult and may leave you with unrealistic expectations. For example, many couples put too much value on the marital home, which leads them to trade assets that are far more valuable in order to secure the home for themselves.
The best thing you can do in a divorce is to try your best to remain objective and work with appraisal and real estate experts who can value your assets in a professional capacity. Sometimes spouses split the cost of an asset appraiser, or each spouse might choose to hire their own.
4. Don't Forget About Taxes
You might feel compelled to take your asset division one step at a time, but it’s extremely important to look at the big picture, too. Divorce leads to several tax changes, mostly due to the division of assets.
Once all your properties and accounts have been divided, you may be left owing money when tax season comes around. To avoid this, be mindful of the tax implications of each property before you insist on keeping it for yourself. If you aren’t sure about the tax implications, ask your attorney or financial advisor.
5. Don't Keep Shared Accounts
Clearing out your shared accounts immediately after you file for divorce definitely isn’t the best move, but you also shouldn’t continue sharing finances with your spouse once the divorce process begins. If your spouse can still access your bank or credit account, he or she could monitor your spending and try to use that information against you in court. Your spouse might also try to clear out your accounts, leaving you with nothing. To avoid these issues, you should open your own accounts immediately after the divorce process begins.
6. Don't Hide Assets
It may be tempting to try to hide assets or properties from your spouse to save them from property division, but this is both unwise and illegal. Hiding assets requires you to lie on the financial forms you submit to the court at the beginning of your divorce and lying to the judge could land you in contempt of court.
This risk is never worth the reward, so it’s always best to keep all your assets on the table, even if you feel they should rightfully belong to you. Instead of hiding your assets, discuss your priorities with your attorney and come up with a strategy to help increase your chances of obtaining those assets during the property division.
Need Help with a Divorce? We're Here for You
Dealing with the financial challenges that come with a divorce can be extremely difficult, especially if you have a large number of assets or complex assets, like a business or investments. The most important thing you can do to preserve your assets and your finances is to work with an attorney who has practice working on cases like yours. McKinley Irvin is dedicated to protecting our clients’ financial futures. Whatever your current situation, we can work with you to preserve your finances and employ the help of expert accountants and financial advisors to support your case.
Contact McKinley Irvin at our Oregon office to meet with our divorce lawyers to discuss the complexities of asset and debt division in your divorce.