During a divorce, you will face many decisions that may affect your financial security. During the process, it’s easy to get distracted by emotions of a major life transition and pay less attention to your finances. This can lead to unnecessary hardships in the future. One of the first steps to help you make the right choices is by looking at some of the common financial mistakes that divorcing couples have made and work hard to avoid them.
The first mistake you should avoid is not having a financial plan at the time of the divorce process. Not having a new financial plan could be one of the biggest financial mistakes you could make after a divorce which could have lasting effects on your finances. If it begins to feel too overwhelming, it might be beneficial to sit down with a professional financial planner who can help guide you through all of the complex financial issues that arise during the divorce process.
The next step in reaching a fair financial outcome in your divorce is determining where you and your former spouse stand by carefully reviewing all income and expenses. If you don’t understand what your monthly financial obligations look like, you won’t be able to adequately create a plan for your income once the divorce is final. You should assess all sources of income that you and your former spouse have to get an idea of what your exact divorce finances look like. Reviewing your expenses can also help you see what’s working and what’s not when it comes to your finances and can help you decide what to do to move forward with your life.
Overspending after a divorce is common, even for those who are suffering from financial issues. The divorce process can trigger depression for many even after it is finalized, and some people fight their feelings by making purchases, trying to change the way they look or changing their surroundings. But after a divorce, finances on both ends can change dramatically. It’s a good idea to reduce your spending after a divorce in order to avoid incurring debt and to ensure that you’ll have enough saved to fund retirement. The last thing you want when starting your new life is to enter it with mounting debt. The sooner you make the necessary adjustments, the more likely that you’ll enjoy long-term financial security.
Another common financial mistake made is forgetting about shared debts. During a marriage, many couples don’t stop and think about the implications of shared credit. If you took out any joint loans or credit cards during your marriage, you’re just as responsible for paying them off as your former spouse. If you don’t close these accounts as soon as you separate, you’ll still share the responsibility, and if your ex-partner runs into debt, it will affect your credit score as well as theirs. Lenders won’t forgive your responsibility after a divorce, even if your divorce agreement says that your ex-spouse will pay everything off. It may be wise to consider paying off all shared debts before finalizing your divorce so that you both can start off with a clean slate.
Failing to secure spousal support and child support payments with insurance is another mistake often made by divorcing couples. If your divorce was amicable, you may feel secure in your alimony payments, however, life happens, and child support and alimony can disappear in certain circumstances. You can protect yourself by setting up an insurance policy to ensure that these payments will continue in the event of your ex-spouse’s disability or death. It’s important to understand that these policies won’t help you in the event of your spouse’s voluntary decision to stop paying. In this situation, you’ll need to go to court and ask for an order that your spouse makes the appropriate payments.
When it comes to money and divorce, the decisions you make now will impact you and your family for years to come. You may feel comfortable dealing with some of these issues on your own, but with many of them, it’s crucial that you find good financial advice from a qualified professional. Divorce financial planning can help you gain more understanding of the settlement options available to you and how each of those options will impact your specific situation. By avoiding these common financial mistakes and working with a professional who is skilled in the financial aspects of divorce, you will have a much better chance of coming through your divorce financially secure and ready to face the future with confidence.
By Debra Schoenberg