Top Ten Financial Mistakes People Make When Getting Divorced

Divorce is an emotionally charged and complex process that can significantly impact your financial future. Recently, I had the pleasure of co-hosting a meeting with New Beginnings, a divorce support group in Bedford, New Hampshire. New Beginnings is a resource for those who are navigating the challenging waters of divorce. 

The group embodies the power of a supportive team, recognizing that having the right people by your side can make all the difference. Inspired by the stories and insights shared during our meeting, I wanted to highlight the top ten financial mistakes people make when getting divorced.

By being aware of these pitfalls and taking proactive steps, you can navigate your divorce with confidence and lay the foundation for a financially healthy new chapter in your life.

1. Failing to Understand the Full Financial Picture
   One of the most critical steps in a divorce is understanding your entire financial situation. This includes knowing all assets, debts, income, and expenses. Many people overlook this step, leading to unfair settlements and long-term financial issues. Ensure you gather all financial documents and consider hiring a financial advisor or forensic accountant to help. Don’t assume you know where every account is located. A CDFA (Certified Divorce Financial Analysis) can help you put together a full financial picture. 
2. Underestimating Living Expenses
   After a divorce, your living expenses will likely change. I work closely with clients to determine what their new cash flow needs will be. Your new life won’t be your expenses cut in half. For many couples, they need to determine how to make the same amount of income support two households instead of one. Creating a detailed post-divorce budget that includes housing, utilities, food, healthcare, and other essential expenses to ensure you’re financially prepared is essential and often overlooked. 
3. Neglecting to Update Financial Documents
   With divorce  comes the need to update important financial documents, such as wills, insurance policies, and beneficiary designations. Failing to update these documents can result in your ex-spouse receiving benefits or assets intended for someone else. A CDFA can assist you with the often overwhelming and time-consuming process of reviewing and updating your financial documents after your divorce is finalized.
4. Overlooking Tax Implications
   Divorce can have significant tax implications, including changes in filing status, alimony, and the division of assets. Understanding these tax implications is essential to avoid unexpected tax liabilities. If you don’t have one already, consider hiring a tax professional to help navigate the complexities of, and plan for, your new tax situation.
5. Failing to Consider Long-Term Financial Goals
   In the heat of a divorce, it’s easy to focus on your immediate needs and overlook your long-term financial goals, such as retirement. Ensure your settlement supports your future financial security by considering the impact on retirement accounts, investment portfolios, and other long-term savings.
6. Ignoring Debt Division
   Dividing debt is just as important as dividing assets. Failing to address joint debts can leave you liable for your ex-spouse’s financial obligations. Make sure all debts are clearly divided and documented in your divorce agreement, and consider paying off joint debts to avoid future complications.
7. Emotional Decision-Making
   Divorce is an emotional process, but making financial decisions based on emotions can lead to costly mistakes. Whether it’s keeping the family home for sentimental reasons or hastily agreeing to a settlement, strive to make financial decisions based on logic and long-term considerations rather than emotions.
8. Overlooking Hidden Assets
   In some cases, a spouse may try to hide assets during a divorce. Failing to uncover these hidden assets can result in an unfair settlement. Work with a forensic accountant or a CDFA to ensure all assets are disclosed and fairly divided.
9. Misjudging the Value of Assets
   Not all assets are created equal! For example, the value of a retirement account is not the same as the value of a house or a car. Understanding the true value and liquidity of assets is crucial for a fair division. Don’t overlook pensions and life insurance policies, as they can hold significant value. Consult a CDFA for professional advice to accurately evaluate the worth of all your assets.
10. Neglecting to Plan for Healthcare Costs
    Healthcare costs can be a significant expense after divorce, especially if you were previously covered under your spouse’s insurance plan. Make sure to plan for healthcare coverage, whether through an employer, marketplace insurance, or other means. Do your research and consult your support team to find trained professionals who can provide cost estimates. This way, you won’t be caught off guard.

Conclusion

Divorce is a challenging and transformative time. Avoiding these common financial mistakes can help ensure a more secure and stable future for you. Taking the time to understand your financial situation, plan for the future, and seek professional advice from a CDFA can make a significant difference in your financial well-being, post-divorce.

Feel free to share this post on your blog, social media, or with clients who might benefit from this information. If you have any questions or need personalized financial advice, don’t hesitate to reach out today for a complimentary consultation.