10 Common Financial Mistakes When Planning to Divorce

There are many different components of a New Jersey divorce. For example, divorce can be one of the most emotionally challenging experiences in a person’s lifetime. Moreover, the end of a marriage is also a significant financial event. When not handled intelligently, the financial fallout from a divorce can linger for years or even decades. With this in mind, it is important for you to be aware of certain financial mistakes when planning to divorce that occur with some frequency. Whether you’re initiating a separation or responding to one, understanding and avoiding the most common financial mistakes when planning to divorce is essential to protecting your future. There are 10 more commonplace financial mistakes to be aware of and diligently avoid when planning heading towards a dissolution of your marriage.

Failing to Understand Your Finances

One of the most frequently occurring and potentially dangerous financial mistakes when planning to divorce is entering the marriage dissolution process without a clear understanding of your fiscal picture. Many people rely on their spouse to handle money matters. This leaves them uninformed about assets, debts, and even income sources. In advance of filing for divorce, gather documentation: tax returns, bank statements, credit card bills, mortgage documents, retirement account balances, investment portfolios, and all financial documents you can get your hands on.

Underestimating Post-Divorce Living Costs

It’s commonplace for a person heading to a divorce court to underestimate the cost of maintaining two separate households. Many individuals are surprised to find that their income no longer stretches as far as they once thought it did. In this regard, it is vital to create a realistic post-divorce budget that reflects the new cost of living, including insurance, childcare, and other recurring costs that will be faced alone.

Fighting to Keep the House Without a Plan

Many people initially want to keep the family or marital home when a marriage is coming to an end. This especially is the situation when children are involved. The stark reality is that retaining the family home without being able to afford the mortgage, taxes, and maintenance is a common and costly error. You absolutely must consider seriously and completely whether it’s financially feasible to keep the house when a divorce is concluded

Ignoring Tax Consequences

Divorce can have major tax implications and usually does. Many divorcing couples overlook them. Consulting a tax professional is crucial to understand your obligations and to minimize surprises oftentimes is an important part of the divorce process.

Not Considering Retirement Assets

Time and time again, people contemplating a New Jersey divorce overlook various retirement assets that will come into play during the proceedings. The fact is that things like pensions, 401(k)s, IRAs, and other retirement savings are often the most valuable assets in a marriage (beyond the marital residence), yet they’re sometimes ignored or undervalued during divorce proceedings. Don’t waive your rights to these funds without understanding their future value.

Hiding Assets or Income

Some spouses attempt to hide assets, underreport income, or delay bonuses and raises in anticipation of the end of a marriage. Not only is this unethical and possible illegal, courts do not look favorably upon deception. Hiding assets can result in penalties, loss of credibility, and even criminal charges. Full disclosure is required at the beginning of New Jersey marriage dissolution proceedings.

Relying Solely on Emotions During Negotiations

Divorce nearly always stirs strong emotions that include:

• Anger
• Guilt
• Sadness
• Shame

In the grand scheme of things, financial decisions based on feelings or emotion as opposed to facts and logic can be most harmful. It’s important to approach financial negotiations with a clear head and long-term perspective top of mind.

Failing to Update Estate Plans and Beneficiaries

After divorce, many people forget to plan to update their will, trusts, power of attorney documents, and beneficiary designations on life insurance policies or retirement accounts in the lead up to a divorce proceeding. This oversight can lead to unintended consequences in the long term, such as a former spouse inheriting assets or making medical decisions on your behalf.

Going It Alone Without Professional Guidance

Finally, when it comes to financial mistakes when planning to divorce, attempting to navigate divorce without professional assistance can lead to costly mistakes. Divorce attorneys, financial planners, and tax professionals can help ensure you don’t miss critical details. If you have questions concerning a divorce, call (201) 845-7400 for a free consultation.