You set out to have an “amicable” divorce; you talk to friends, to colleagues and even to the clergy and “thought” you were prepared. But this is an extremely emotional time and it is easy to overlook financial details that could affect you for years after your divorce.
Here are the top five financial mistakes made by divorcing parents, along with advice on how to avoid them. Navigating successfully through these financial waters takes diligence and distance from the emotions surrounding the decisions.
- No Monthly Budget in Place. A typical budget spells out how much you make, how much you spend and any remaining disposable income and what you do with it. But according to recent Gallup polls, only two-thirds of households use a budget. Many people know what their monthly car payment is, but are at a loss to know how much they spend on grooming, or their kid’s extra-curricular activities, or other such life expenditures. Understanding your current budget will let you know what your future, post-budget will need to look like.
- Making an Emotional Decision on Your House. Home is where the family is, but a HOUSE is a financial asset. The amount of equity you have in your home is an asset that could be used to purchase two new smaller homes post-divorce, or it could help fund college funds and retirement accounts if you are not going to re-invest it. Emotional attachment may lead you to cling to an overly large home with an equally large mortgage payment, property tax burden and high maintenance and upkeep expenses. Accept guidance from your financial advisor here — they will help you make a logical decision, not an emotional decision.
- Assuming “Equitable Division of Assets” Means EQUAL Division of Assets. If you were to sit down and make a list of all your assets, from savings accounts, to stock accounts, home equity, retirement funds, etc., you could come up with a decent list of assets to be divided. But HOW to divide it is the question.Splitting them in half, i.e. “equal,” may not exactly be “equitable” or fair.For example, your spouse drives a Lexus IS350 to work and business meetings, and owes $40,000 remaining on payments. You drive a Toyota Corolla and owe nothing. What is “equitable” in dividing such assets?
How about if you both own a family business together, with one of you the CEO and the other of you the Bookkeeper. How much is the family business worth and what is “equitable” in dividing it as an asset?
Business valuation experts and financial advisors will ensure the right calculations are done, and done properly, to divide the assets fairly.
- Not Utilizing Insurance as a Tool to Protect Your Support Payments. When you finish your divorce you may be entitled to receive alimony and child support payments. You may even rely on these support payments while you get more education or start a new job in order to become financially independent. But what if the worst happens and your now ex-spouse is disabled or deceased and cannot continue to make these payments to you? Having put in a simple clause requiring life and disability insurance would protect you and your children in case of the worst. There are other scenarios where insurance can be used as a post-divorce protection tool, so be sure to ask your attorney to explain your options in detail.
- Forgetting to Remove Each Other’s Names from Accounts. The tasks associated with “un-marrying” someone seem to be more onerous than the tasks required to marry them, except now there may be negative emotions keeping you from tackling them. To forget to take your ex-spouse off your Sam’s Club account or off your local fitness center account may not seem like much and may not have a large consequence, but forgetting to remove each other’s names from credit cards could ruin you financially. Your attorney can help you identify the list of tasks such as these and can even help you monitor your progress for completing them.
Separating from your spouse both physically and financially can be a long, painful and tedious process. Your attorney will be your guide through the heartbreak, to help you avoid making financial mistakes.
Scott Shaw is founder and principle of Shaw Law Firm PC, founded in 1995 and dedicated solely to divorce, family law and child custody matters that must be addressed and decided in the state of Georgia. Shaw Law Firm serves the greater Metro Atlanta area, particularly the counties of Fulton, Gwinnett, Cobb, Cherokee, Forsyth, Paulding, Henry, Fayette, Coweta, Newton, Walton, Bartow and Douglas. Schedule a consultation today at 770-594-8309.