It is all-too easy to make mistakes while working your way through a divorce. This post is the third in a series about avoiding common mistakes people make during their divorce. The most recent posts discussed co-parenting and working with your lawyer. In this post, we will look at three mistakes’ people make when dealing with their finances.
Mistake #1: Hiding assets and debts or failing to look for them
Trying to hide assets during a divorce can backfire on you. Attorneys and judges today are very sophisticated regarding finding hidden assets. In a similar vein, some people either try to hide the debt they have racked up for fear it will make them look bad or simply forget to include it. Surprising the court, or worse yet, your own attorney, with hidden assets or debt can derail your case.
Your best course of action is to locate all financial records so you and your spouse can make sure you have a complete picture of marital property.
Mistake #2: Hanging onto a house you cannot afford
The family home is more than a piece of property. It is a part of your family that is now breaking apart. If you are like many people going through a divorce, the house holds great emotional significance for you and for this reason you may want to hang onto it. You may want to keep the house to create stability for your kids. There is nothing wrong with this as long as you can afford the house after the divorce.
Your financial situation will change, however, and you need an honest assessment of your new budget. Work with your lawyer and a financial professional to help you determine what you can afford. You may have to give up your share of other marital assets in order to keep the house. If you have children, you will have a child support obligation or payment to consider in your budget. Even if you can technically afford the house, you must ask if you will be left with enough to live on or if you will be “house poor,” meaning you own a home but cannot afford other daily living expenses.
Mistake #3: Assuming you know what your assets are worth
The money sitting in your bank account and your retirement account may not have the exact same value. When you begin to take into account tax liabilities and future earnings, you will realize that different assets should be evaluated differently. If you or your spouse own a business, for example, you may need a financial professional to value that business, just as you may need to have your home appraised.
Using such professionals can end up saving you money in the long run by giving you a full and accurate idea of what you own and helping you make a fair division of property, including debts and taxes. Throughout the process, try to stay focused on the big picture of creating a financially stable future for you and your family.