The Top Common (But Costly) Financial Mistakes to Avoid During Divorce
For many people, divorce is time consuming and emotionally draining, which explains why some are tempted to make some considerable financial mistakes during the process. While this is understandable, we as attorneys practice in divorce and family law frequently have to address some of the financial fallout from this decision-making, which then makes the entire process that much more difficult.
Below, we discuss how to avoid making the most damaging financial mistakes while going through divorce:
Big Ticket Purchases
First and foremost, do not let yourself go out and buy a big ticket item, like a new car or house. While these items might have been financially feasible before, you may very well find that they significantly interfere with your ability to stay on top of new finances that you are now solely responsible for.
Cashing In On Investments & 401(k)s
Also be careful about cashing in on investments and 401(k)s to pay the bills. Keep in mind that “cashing out” on these items could lead to substantial tax consequences; even potentially placing you in a higher tax bracket for the entire year, which can affect other payments, such as student loan payments. Also, even if you cash in on 401(k) funds that have already been taxed, you can get hit with a penalty by the IRS for cashing in on those funds before you turn 59 ½.
Cashing in on your investments also means that they are (obviously) no longer be invested, which could also take you off-track from the financial goals you and your attorney mapped out for your future.
When it comes to coming out of divorce positively, you want to have a solid financial plan in place. Keep in mind that, if you obtain a portion of your ex’s retirement accounts in the form of a qualified domestic relations order (QDRO), you can place this into a new IRA under your name and continue to defer paying taxes on the funds.
Alimony Payments & Employment
As you may know, as of January 1, 2019, the tax benefits associated with paying alimony will have effectively disappeared. If making alimony payments scares you so much that you are tempted to quit your job just to get out of it, don’t; this will simply result in more financial difficulties—and possibly more time in court.
Fighting Over an Expensive Family Home
One big potential mistake we see a lot of clients make is fighting over who is going to get the family home at all costs. This can sometimes be especially important to clients who feel like holding onto that home is important to their children.
However, while the home may seem like your most important financial asset right now, keep in mind that the mortgage and maintenance on it may very well turn out to be way too much for one person (you). In addition, some clients find themselves in what’s known as a negative equity situation, which means that they are stuck with a house that’s worth less than what they owe on it. That can turn out to be even harder on your children, especially if all of your income goes towards your mortgage and you cannot save any of it for their college education.
Contact Our Florida Divorce & Family Law Attorneys
Keeping the family home and making other big decisions may very well be in your best interests; just make sure that any decision you make with significant financial repercussions are first well-vetted with your attorney so that you stick to the financial plan that’s right for you. Contact our Florida divorce attorneys at HD Law Partners today to find out how we can help you stay on track.
Resource:
forbes.com/sites/davidrae/2018/10/25/divorce-financial-mistakes/#553ff9207eda
