The New Year always brings a flurry of resolutions and decisions to make life changes. Many people decide to go to the gym more or to read a book a week. But a surprising number of people also choose the beginning of the year to get a divorce.
There are many possible reasons why married couples may choose to file for a divorce, whether it is for financial reasons or simply drifting apart. But why is the number of couples divorcing higher in this month than in other months of the year?
For some, the decision to file for divorce after January 1 is similar to the reason why others decide to eat healthier or exercise more often. For whatever reason, a couple wants to get a fresh start with the New Year, and beginning the divorce process is a step in that direction.
Others may choose to wait until the holidays are over to file for a divorce. Holidays are typically a time when family comes together, and a couple may decide to wait for the sake of their children.
And yet others may choose to begin the divorce process at the beginning of the year for financial and tax reasons. Even if the decision to separate comes in the previous year, the couple may wait until after income taxes have been filed and the financial situation of each person has been established.
Whatever the reason, couples who choose to file for divorce this month will be joining many other couples as they make decisions around child custody, child support, spousal maintenance, property division, and the division of debt.
Divorce can be a lengthy process fraught with both financial and emotional strain as you make important decisions with significant long-term consequences under stressful conditions. But having the right financial strategy can help you make it through the process and avoid these six common mistakes:
1. Delaying financial planning until after the divorce is final
Proper financial planning is a critical first step in any divorce filing. Your divorce attorney, accountant, and financial planner can help you get a complete picture of your marital property so that when it comes time to divide assets and liabilities, you know exactly what you’re agreeing to. Be prepared to provide the following documents so that your divorce attorney can fully evaluate your finances:
- A prenuptial agreement (if applicable to you)
- Current bank and securities account statements
- Current retirement plan statements
- Current mortgage and other debt statements
- Income tax returns for the prior three years
- Deeds to your real estate
- Vehicle titles
- Employment or business partnership agreements
- Life insurance policies and cash surrender value statements
- Estate planning documents, such as wills, powers of attorney, medical directives, and trusts
Also, discuss with your divorce attorney about which household expenses, if any, you’re expected to pay while your case is pending. Take all of this information and work with your financial planner to create or update your post-divorce individual financial plan to help you identify any new financial needs and prioritize your goals for life after your divorce.
2. Agreeing to a settlement just to get it over with
You may be tempted to agree to a settlement out of exhaustion, guilt, or simply because you are ready to move on. However, a quick settlement without thought can lead to an unfair division of property and debt. With the help of your divorce attorney, take the time to understand your rights and carefully review joint property ownership details so that you can secure the best settlement you’re entitled to.
3. Overlooking future expenses
Tax planning is critical in the final division of property to be entered in your divorce. With the help of your accountant and financial planner, work to identify new expenses you may have to cover after the divorce, such as tax liabilities as a single person. While you generally won’t owe federal capital gains taxes on any assets that are transferred to you in the divorce settlement, you may owe taxes if you sell an asset later for more than the asset’s cost basis. Other common expenses post-divorce are spousal maintenance and child support. Neither support payment is tax-deductible; therefore, you should look at your net income before and after these payments to determine if you can still save money to plan for your future.
4. Attempting to devalue assets prior to divorce
From the time you separate from your spouse to the finalization of your divorce, your finances will be carefully monitored and scrutinized. Be sure to consult with your divorce attorney before withdrawing money from joint accounts, moving assets around, or making large purchases while the divorce is pending. This will help ensure you’re complying with local court rules and leaving your emotions on the sidelines. The goal of every divorce is a fair or equitable division of marital property and debt. If one spouse is spending large amounts of money or selling high-value assets before a settlement is reached, it could signal dishonesty and significantly harm their standing before the court.
5. Not updating your beneficiaries and estate plan
After dividing assets in a divorce, work with your financial planner to review the named beneficiaries on your life insurance policies, retirement accounts, annuities, trusts, and bank accounts. Update them if necessary, unless you have a court order directing you not to do so. It may also be a good idea to remove your former spouse’s name from any documents or accounts that list them as an emergency contact. You should also consult with your divorce attorney to update your will as well as any trusts, powers of attorney, and medical directives you created during your marriage.
6. Not seeking all the help you may need
One of your most valuable assets during a divorce is your team of professional advisors. Having a divorce attorney, an accountant, and a financial planner working together to focus on practical concerns can alleviate additional worries and keep you focused on the outcome. Separating a household and dissolving a marriage can stir up significant emotional stress, and it’s a hardship no one should navigate alone. Your divorce attorney should work not only to help you reach an optimal conclusion to your divorce but also to send you to an accountant and financial planner to set you up for life post-divorce.
Should you need the assistance of an experienced divorce attorney in Creve Coeur and O’Fallon or have questions about your divorce situation, know that we are here to help and ready to discuss those questions with you.