5 Most Common Money Mistakes
From underestimating your monthly expenses to accepting an offer just to get it over with, here are the 5 most common mistakes people make when it comes to divorce and money.
1. Underestimating your monthly expenses.
A complete monthly budget should have about 120 items. If yours does not have as many, you are probably forgetting something. Did you include your health insurance deductible, painting the exterior of your home (recommended every 5 years) and money to remove a fallen tree from your yard? Your request for alimony is based on your budget. If your budget is underestimated by $300 per month, it will be off by $4,000 in a year. Where will you get the extra $4,000? If you are the bread winner, you need to have detailed monthly expenses, or you could agree to pay an amount of alimony that you ultimately can’t afford.
2. Believing that your attorney will handle everything.
Divorce is essentially a business transaction – a settlement – in which assets and expenses are divided between two parties. You wouldn’t ask your dentist to perform heart surgery, so why would you ask your attorney about your finances? Attorneys are trained to handle the legal issues. Even the best divorce attorneys are not certified financial consultants or have formal training to perform financial analysis of assets or provide tax information. Find a financial professional who has been trained in the specific financial and tax issues of divorce. She/he will work closely with your attorney or mediator to provide the analysis to support your alimony request or support why your spouse’s alimony request is not acceptable. Then have your attorney do what she/he has been trained to do: argue for the best result.
3. Not taking tax deductions.
Did you know that attorney’s fees for obtaining alimony and retirement funds may be tax deductible, if you qualify? Did you know that alimony is taxable to the recipient and is a tax deduction for the person paying? Did you know that most fathers do not qualify as head of household and are not able to take a child as a deduction? Be aware of other potential deductions and take them.
4. Failing to communicate directly with your spouse.
Attorneys are best utilized for legal matters. It is not cost-effective for your attorney and your spouse’s attorney to communicate concerning your preference to have the kids on even years for Christmas or your desire to keep the treadmill and the sofa. Two attorney’s fees combined can easily be $600 per hour. Save the extra cash for your IRA or a much-needed vacation and discuss (or email) minor issues directly with your spouse. Our services include helping you control legal expenses and ensuring that you get the most value from your legal fees.
5. Accepting an offer just to get it over with.
Yes, you are an emotional wreck and you just want it over. However, during a divorce you will be making the most important financial decisions of your life. Take the time to do it right. Divorce is the fourth most frequent cause of bankruptcy. Don’t become a statistic. Speak to a financial professional to understand the short- and long-term financial impacts of your potential settlement package. Don’t assume that a 50/50 division of property is the same thing as a “fair” division of property.
Sandy Arons, MBA, CDFA™, CFDP, CDFS is the founder of Arons & Associates Divorce Planning, where they specialize in the financial and tax issues of divorce. They encourage you to take the time to understand the numbers before you sign the final divorce paperwork, educate you so you can make informed choices, and secure your future and your children’s future. They can be reached at (615) 376-8204
This article has been edited and excerpted from the book It’s No Big Deal Really: A Parent’s Guide to Making Divorce Easy for Children (Vision, 008) by Anne Cantelo.
