Ten Steps to Protect Your Finances During a Divorce
Your divorce agreement will help determine your financial future. Here are ten of the most common financial mistakes made during divorce and how to avoid them.
1. Consider legal fees:
Divorce can be expensive, especially if you and your spouse can’t agree. Make sure that you budget for legal fees as well as for your change in lifestyle.
2. Create a post-divorce budget:
You may know how much you earn each month, but do you know exactly how that money is spent? Make a list of all of your expenses and use that list to develop a realistic monthly budget. When considering the cost of your future living expenses, take inflation into account. If you ignore inflation, you may find that you cannot maintain your quality of life.
3. Consider tax implications
Tax issues that may arise from divorce can include:
• Who will get the tax exemption for dependents?
• Who will be able to claim Head of Household status?
• Which attorney fees are tax-deductible?
• How can you be sure “maintenance” payments will be tax-deductible?
• How can you avoid the mistake of having child support be non-deductible?
4. Be realistic about keeping the family home:
Parents often believe that it is best for the children to stay in the family home. But keeping the home may not be the best financial decision, especially if you have a reduced income. Before deciding to keep the home, make sure you can afford it. If you don’t earn enough to cover the mortgage, property taxes, and routine maintenance, you could end up losing the house.
5. Understand your liability for debt
If you or your spouse incurred credit card or other debt during the marriage, that debt may be a shared liability – even if your name isn’t on the card or loan documents. All debt will be divided during the divorce process in the same way all assets will be divided. However, your ex-spouse may choose not to follow up on their portion of the debt responsibility. Credit card companies don’t care about the wording on the divorce settlement. They will consider both of you responsible for payment. A default by one party may end up affecting the credit of the other party. If possible, pay off all debts before the divorce becomes final.
6. Take your name off joint accounts:
Make sure that you take your name off all accounts. You don’t want to be responsible if your spouse runs up new credit card debt or fails to make loan payments.
7. Look at your complete financial picture:
Each financial decision may have an impact on other areas. When you consider one asset or source of income at a time, you miss the big picture. Who is going to keep the house? Who will get the investment income? How will the retirement accounts be divided? Look at your complete financial picture before dividing assets. Financial disclosure, a part of each Pennsylvania divorce case, will help when inventorying assets since it is a key part of promoting transparency and fairness. It defines family finances, protects rights, and ensures a fair division of assets.
8. Consider whether equal division of property is fair division of property:
Not all assets are created equal. Your home may have an assessed value of $400,000, but is it really worth its market value if you can’t sell it? Agreeing that each spouse will receive property of equal monetary value does not mean that they each have the same access to the money. When dividing property in a divorce agreement, one should consider whether assets are liquid or illiquid, as well as the tax basis, present value, and any transaction costs.
9. Insure your child support and alimony payments:
What will happen to your alimony and child support payments if your ex is seriously injured or killed? You may request that your spouse obtain disability and life insurance policies that ensure that alimony and child support payments continue in the event of his or her disability or death.
10. Consider long-term financial security:
If you focus only on the immediate task of splitting assets and getting alimony and child support, without understanding how things might look in 10 or 20 years, you’re doing yourself a great disservice. It is often a good idea to hire a financial planner to review your divorce settlement agreement before you sign it. The financial planner will be able to warn you of any long-term financial consequences. To learn more about working with a financial planner during your divorce, contact Petrelli Previtera.
HOW PETRELLI PREVITERA CAN HELP
Petrelli Previtera wants to emphasize that most financial mistakes made during a divorce are decisions made based on emotion instead of proper financial planning.
Through compassionate representation, the lawyers at Petrelli Previtera do their best to obtain the most favorable outcome for you. We understand the emotional turmoil you may be facing, and we’re here to help you get through this difficult time and procure you the best financial settlement as possible. Contact us today for a consultation!