Ask a Family Law Attorney: 8 Financial Mistakes to Avoid During Divorce
1. Going on a Shopping Spree
There are many reasons to embark on a shopping spree, whether you received a holiday bonus at work or want to furnish a new home, but excessive spending should be avoided during a divorce. Once your settlement is finalized, your income level will change significantly, and you may find a mortgage, rent, bills, and car payments a bit more onerous than expected. Until you know where you stand financially, avoid going on a significant spending spree and save your extra money.
While there’s nothing wrong with planning a vacation or significant expenditure in your future, it’s best to wait until everything is settled and you have a clear picture of your financial situation.
2. Not Taking Taxes Seriously
If you’re entitled to receive marital assets as a part of your divorce settlement, they may be subject to taxation. When you split investments with your spouse, the amount your receive may seem like a great incentive to buy a new home or car, but there may be implications if you don’t seriously consider the after-tax amount. It’s best to consult with an attorney and a tax professional to ensure you’re getting a fair settlement and determine the after-tax value.
When you divide property, you’ll want to review the proposal with a professional and decide if it’s a worthwhile offer. It’s always best to postpone cashing in newly acquired assets until you know further details and tax implications.
3. Providing an Inaccurate Budget
When spouses initially calculate their budget for temporary Alimony, it’s common to underestimate the amount needed for day-to-day expenses. When you accurately assess your financial position and estimate the possibility of higher expenses following the divorce settlement, you’ll have a complete and precise budget that will cover your bills and ensure you receive the right amount.
If you’re not confident in estimating a realistic budget for your future, there are some great software programs to support your projection. You may also want to review your budget with a financial consultant for a realistic plan.
4. Excluding the Costs of Inflation
Everyone is aware of how inflation impacts the cost of living, though many people don’t consider this factor when calculating their expenses into the future. It’s essential to consider the cost of your children’s education, retirement savings, mortgage payments, and other costs that will increase or become more relevant at a later time.
An easy way to estimate the cost of inflation is to review the percentage of inflation for college tuition, property taxes, projected vehicle expenses, and other expenses you expect to make over the next two decades. You can simplify the calculation by applying a general inflation rate or a percentage to your costs for a more realistic figure or consult a financial expert to determine an accurate projection.
5. Overestimating a Settlement Proposal
It’s expected that everyone involved will need to make compromises and adjust to a new life after the divorce. However, it’s essential to plan realistically to ensure the transition is smooth and without unnecessary complications. Before you accept a proposal, it’s vital to speak with a family lawyer to ensure your rights and any children involved are entirely protected.
6. Failing to Establish a Post-Divorce Budget
It may seem unnecessary to plan for your future budget during divorce proceedings, though it’s an important step to ensure you’re prepared once the settlement is finalized. In many cases, a divorce settlement is long-term, either with few or no changes. Without a realistic financial plan, a divorced single will find prioritizing their expenses, life goals, and realistic expectations will be negatively impacted for the long term.
Once a household splits, the cost to live on your own will increase significantly. It’s also essential to consider daycare expenses, future savings, and possible career or location changes that may follow the divorce. Creating a realistic plan for your future will give you a better sense of what to expect following the divorce settlement.
7. Getting Too Attached to Marital Assets
It’s essential to let go of attachments that complicate a divorce settlement and focus on getting the most out of your finances. It’s not easy initially, though you’ll find the outcome rewarding when there’s less upkeep. Expensive antiques may require additional storage, and a ranch or extra vehicle may cost more than you can afford. Focus on the future and how you’ll manage your living expenses once everything is finalized.
8. Leaving Your Job to Avoid Alimony
It may be tempting to quit a job to avoid paying Alimony, though this will only backfire in the long term. You’ll likely pay higher legal fees and spend more time in court, which will impact your finances and living expenses. Returning to work or finding a new job is inevitable, and you may be required to pay support or Alimony retroactively, depending on individual circumstances.
Ultimately, what may seem like a solution in the short term will cost a lot more later. You’ll save yourself from possible financial ruin if you approach the settlement process somewhat and consult with a divorce attorney who can work with your circumstances towards a reasonable solution.
Know What to Do
Before you consider filing for divorce, it’s essential to consider all your options and possible outcome. Contact the legal office of Skillern Firm to consult with our legal team. We will ensure you receive the best representation from the start of your divorce proceedings. Our experienced legal team will provide the knowledge and expertise you need to receive a fair settlement and everything you’re entitled to during and after the process.
Skillern Firm offers convenient locations in Sugar Land, TX and Houston, TX, so you can schedule a consultation to assess your individual needs. Our website offers helpful questions and answers and some background on our attorneys and their experience in family law. You’ll receive the best in legal representation so you can avoid costly mistakes and aim for the best possible outcome in your divorce settlement.