The 5 Most Common Financial Mistakes of Divorce
The first thought that ran through my head when I received an invitation to one of the five (!) weddings my husband and I are attending this summer was, "Wonderful!" But as I browsed through the couples' registry, my thoughts turned to ... divorce.
Call me a cynic (or maybe just jaded after yet another celeb divorce — sayonara TomKat), but wedding gifts bring back memories of my ex-husband and I divvying up kitchen appliances and sheet sets in addition to our other assets.
Most people who go through a divorce view marriage through a different lens. While I still believe in love, I also acknowledge that divorce is a reality. The dissolution of a marriage is fraught with so many emotions, complicated decisions and painful adjustments that it's easy to make financial mistakes along the way that can have damaging consequences down the road.
If you are in the beginning stages of a divorce, there are preparations you can make to protect your future interests. If you're already in the midst of one — or on the other side — finances should still be top-of-mind.
Here are some of the most common financial mistakes people can make during and after a divorce — and how to help prevent them.
Giving it all away Emotions can cloud judgment, and I know women and men who look back and wonder why they agreed to certain concessions during their divorce. Many people become so tired of conflict that, by the time they split up the assets, they may hand over more than is equitable.
While you don't want to incur excessive legal fees (see #3), you do need to fight for your own financial wellness. Consider working with a financial advisor in addition to your attorney to help ensure you're requesting the right assets for the right reasons.
Assuming debts are paid After the divorce is final, make no assumptions when it comes to your debt obligations, including mortgages and credit card debt. Did you sign the house over to your ex-spouse? If so, make sure your name is removed from the mortgage as well as the title.
I have an acquaintance that didn't even own her marital home anymore and was liable for payments when her ex-husband fell in arrears. Be sure to resolve jointly held debt and close all co-signed accounts.
Racking up legal fees One thing my ex-husband and I agreed on was that we didn't want all of our savings to end up in the hands of our divorce attorneys, and we made an effort to be efficient in our decision-making even though it was difficult at times. Acrimonious or not, lack of preparation, lingering arguments and back-and-forth negotiating can generate steep legal bills. No matter how bitter your divorce, try to come to a similar agreement with your spouse.
Succumbing to budget denial If you're accustomed to living on two incomes or relied on your spouse's salary during your marriage, life as a single person can be a big adjustment. Changes to your lifestyle are often difficult to face, but hard to avoid.
It's essential that you develop and commit to a budget, especially if you're new to managing household finances or are drawn to retail therapy. I've seen friends rack up credit card debt by overspending and ignoring savings goals in the wake of a divorce. I even have a very expensive leather coat hanging in my closet which serves as a reminder of an episode of my own excessive post-divorce spending.
Overspending on kids Closely related to budget delusion is overspending on your kids. Even if you and your spouse have been careful with purchases for your children, it's easy to get off track during a divorce when you — and your children — may be dealing with some guilt and uncertainty. In some circumstances, divorce can even bring out competitive behavior between parents who may be vying for their children's affections in the midst of custody battles.
Before you pull your wallet out to buy your child a new video game or bicycle, remember that indulging your child — or yourself — in the purchase will not undo the divorce and may actually be detrimental to your overall financial situation
Regardless of how you may react emotionally, remember that keeping a level head about finances during the split can lead to more financial security for you and your family in the future.