Divorce can be a long and costly process in which you have to make many hard decisions. Between attorneys, emotional distress, and adjusting to a new family dynamic, your finances might not be a top priority.
However, this is one of the most crucial times to keep your finances in check. Below are four common financial mistakes to avoid during divorce.
- Splitting Assets “Evenly”
While splitting assets 50/50 might seem like a fair deal, it often ends up being just the opposite. Not all assets are equal, do not rely too heavily on an asset's market value as this is not always representative of its true value. Some assets, like a rental property, may be worth more than their market value. When distributing assets, it is also important to consider liquidity, taxes, and any profit gained from an asset to ensure that they are all distributed fairly.
- Fighting for a Property at all Costs
Securing your family home during a divorce may feel like a relief. That is until you find you can't cover the mortgage, utilities, or taxes all on your own. While it can be hard saying goodbye to the family home, it can be the most financially sound decision. On the other hand, you also want to avoid any negative equity. Negative equity refers to when "the value of a property falls below the outstanding balance on the mortgage.” Remember to consider these things when deciding what to do with a marital property to avoid sacrificing your financial stability.
- Quitting Your Job
When settling a divorce, more often than not, the party with a higher income bracket will be required to pay alimony or child support to their spouse. As a final resort, many divorcees will quit their job to avoid paying their spouses. While this may seem like a smart move, it can have catastrophic effects on your long-term financial situation. Quitting your job might save you from paying child support, but the bills will continue coming. Before turning in your two weeks, consider if you have other forms of income to support yourself and your family and that you can afford any expenses associated with the divorce, such as attorney fees or purchasing a new home.
- Not Insuring your Alimony
Settling your divorce might feel like a weight has been lifted off your shoulders. But what if one day your spouse can no longer pay your alimony? Therefore, you must insure your alimony payments. By ensuring your alimony payments, you are also ensuring your future financial stability. Ensuring your alimony payments can protect you in unforeseen circumstances like a deadly accident or if your former spouse becomes disabled. Always remember to think about your future finances.
Divorce is an overwhelming process. We would love to assist and support you during this transitional period. Contact us at FP Wealth Management to learn more about your options.