Avoid These Same Actions
Divorce is one of the most difficult life events you can go through, and it's very common for people in the middle of a divorce to make decisions based on emotion. Your whole life is changing, and it can feel impossible to take a step back from the situation, evaluate it objectively, and figure out the best course of action.
However, there are some choices during a divorce that almost always lead to consequences. Financial matters are especially tricky, so you should be particularly careful when making money decisions. Here are five financial mistakes that should be avoided for a fair and successful divorce:
1. Forgetting to Budget
So much about your financial situation can change during and after a divorce, so it's critical that you make and stick to a detailed budget. You may have to adjust to living off of one income if you were previously in a double-income marriage, and your cost of living can change drastically when you live on your own.
Even if you feel confident that you're financially secure, failing to create a budget is one of the biggest mistakes you can make during your divorce. For at least a few months, you need to keep track of your income and spending to make sure you can maintain your quality of life. Over time, you'll be able to fine-tune your budget, which will help you stay financially stable.
2. Keeping a House You Can't Afford
If you and your spouse own your home, deciding who stays in the house can be one of the biggest challenges during a divorce. Separating with your spouse is a stressful and emotional experience, and staying in your own home can provide a sense of comfort and stability. However, your peace of mind won't last long if you keep the house but can't afford it.
This is an especially common mistake made by parents who have primary custody of their children. While it can be great to stay in the family house with the kids, paying a mortgage and property taxes can be difficult if you go from two incomes to one. As difficult as it may be to let go of the home, it's sometimes a better choice to move than to stay and struggle to make ends meet.
3. Not Looking at the Big Picture
There are many things to consider when getting a divorce, and evaluating everything at once can be overwhelming. Sometimes, though, people focus so closely on specific details of the divorce that they forget to look at the big picture.
If you and your former spouse decide on one financial issue at a time, you may not end up with the best agreement. You have to think about the future of certain assets, especially property, and you have to consider how your financial situation could change over the years. To get a fair settlement, the best course of action is to look at all the aspects of your finances comprehensively. This is why working with a lawyer is so important during divorce. Your attorney is closely familiar with the process of divorce, and they can help you see the big picture.
4. Mistaking Equal for Fair
Divorce requires you to split up your current assets and debts, but neglecting to consider the future of these assets and debts is a common and costly mistake. You and your ex could split everything in half so that you have exactly the same amount of money down to the dollar, but this doesn't mean that you've achieved a fair settlement.
Some assets will appreciate in value more than others, and some debts will collect interest at a higher rate. To come to a good agreement, you should consider the financial future of all of your marital property. One partner might take less in monetary value during the divorce, but if they'll recoup that loss when the assets appreciate, the settlement could be fair.
5. Using Your Retirement Account for Funds
Divorce can be expensive, and finding the funds to cover your attorney's fees and pay for a separate place to live is stressful. You should avoid dipping into your retirement account to pay your bills at all costs, though. It may seem like a good source of cash, but you'll have to pay penalties for withdrawing from the account early, and you'll lose out on a good deal of interest.
The decisions you make during your divorce can continue to affect your finances for years in the future. Before you make anything official, think carefully about the possible long-term effects. Most importantly, consult with a divorce lawyer to ensure that the outcome of the divorce is as fair as possible.