Five Common Financial Mistakes to Avoid During a Divorce

By February 23, 2021Divorce
Five common financial mistakes to avoid during divorce

1. Relying on advice from your family and friends.

You should appreciate that your family and friends care about you and what you are going through. You should also appreciate that your family and friends have good intentions in providing you with advice and that they simply want to support you through what is a very difficult process. Unfortunately, the advice you are receiving is usually misguided. Why would your family and friends be well versed in Missouri divorce law? How could your family and friends know the important details of your financial situation? It’s perfectly fine to use your family and friends for emotional support and to vent about what is going on throughout this process. However, it would be best to avoid any advice provided on what you are entitled to or what you should do in your divorce case.

2. Not keeping records.

The first, second, and third rules for making good financial decisions in your divorce case is to document, document, document. It’s absolutely critical that you maintain good financial records throughout the divorce process. It is important for your divorce attorney, financial planner, mortgage lender, and tax preparer to receive accurate and reliable financial information in order to advise you and protect your interests.

3. Not coming to grips with your financial reality.

This problem is presented to a divorce attorney every day. Your family and friends (see number 1 above) will talk to you about how you need to maintain your lifestyle at the end of the divorce. In some cases, the ability to maintain your standard of living may be possible due to the amount of assets awarded to you or the amount of spousal maintenance received. However, (and here’s the problem) in most cases there simply are not enough assets or enough income available to support two households at the same standard of living as the one prior marital household. Expenses go up as there are now two households to support but the amount of income available may remain the same. Don’t focus on maintaining your lifestyle at the expense of your financial security.

4. Keeping a house that you can’t afford.

This problem is also presented to a divorce attorney every day. Deciding what to do with the marital home is an emotional decision. Many clients see the marital home as a source of stability for their kids and for themselves. As we just discussed above in number 3, you must be careful not to overextend yourself. Before deciding you must keep the marital home, start by making a list of all your housing expenses – mortgage payments, property taxes, homeowner’s insurance, utilities, and maintenance costs – to make sure you can afford to keep the house. Once that list is completed, sit down and have a conversation with your lawyer, or financial planner, or mortgage lender to see if they agree with your financial decision.

5. Negotiating a settlement too soon.

Before you can start negotiating a settlement, you must have clearly defined goals and a full understanding of your family’s financial picture. Start by looking at all of the documents (see number 2 above) you have gathered in obtaining your financial information. You should have a comprehensive list of all assets and debts to be divided by the Court. You should also have accurate income information for you and your spouse along with a monthly budget that sets forth what you expect to spend before you start negotiating. If you negotiate too soon without some or all of this information in hand, then your desire to be divorced as quickly as possible could backfire. It’s also possible that either you or your spouse will want to back out of any negotiated agreement once more information is known. When that happens, both spouses begin to question whether the other is negotiating in good faith and will follow through with any agreements reached.

Should you need the advice of a divorce attorney or have questions or concerns about your situation, know that we are here to help and discuss those issues with you.