Emotionally, divorce is one of the hardest challenges most of us will ever face. But separating from a partner isn’t just tough on our mental health, it can also pose all sorts of problems when it comes to our finances.
Due to the cost of legal advice and filing fees, divorce is an expensive process. Although fees will vary state by state, the average cost of getting divorced in the US is a staggering $15,000. This is before you consider the financial struggles that can often follow divorces, such as adapting to a single income and moving house.
But the good news is that divorce doesn’t have to be financially devastating. It can be an opportunity to feel more in control of your finances than ever. With some careful planning and the power of knowing what not to do, you’ll be able to make sure that the process goes as smoothly as possible.
Here, we’ll explain the ten mistakes you should avoid when handling your divorce and finances.
Mistakes You Should Avoid When Handling Divorce and Finances
1) Not Protecting Your Credit Score
One of the biggest mistakes people make when going through a divorce is failing to protect their personal credit score. For many couples, divorce isn’t just about dividing assets – it can also require you to divide your debts, such as unpaid credit or outstanding mortgage payments.
There’s nothing worse than worrying that your ex-partner hasn’t paid off their share once you’ve separated. Legally, you’ll still be responsible for each other’s portion of the debt – even if you’ve agreed to split it equally between you.
The best place to start is by ordering a breakdown of your credit score. This will reveal everything you owe personally, as well as debts that have you and your spouse incurred. If possible, try to pay off these debts now, before you finalize the divorce. If you do need to work on repairing your credit rating you may want to consider working with a reputable company.
2) Not Tracking Your Expenses
Once you know that your marriage isn’t going to last, a crucial aspect of managing your divorce and finances is starting to track your expenses before you officially separate.
Log the money you spend on:
Track purchases such as:
Look at your old credit card statements to make estimates of your spending in the past years. Your attorney may well use this information to decide how to split up your assets (and debt, if applicable), and whether you should pay spousal support.
3) Spending Large Amounts Before Your Divorce Is Finalized
If you’re worried about how your finances will look once you’ve divorced, you might be tempted to make any big purchases you’ve planned before your divorce is finalized. A new car, expensive cosmetic treatment, even presents for your kids – you might be unsure how you’ll afford these after your separation, especially if you relied on your partner financially.
However, you should resist the urge to spend large amounts of money before you divorce. Any unusual spending habits in the run-up to your separation can be viewed unfavorably by the courts.
4) Making Legal Changes To Your Finances Without Telling The Court
Once you’ve filed for divorce, refrain from making any legal changes to your finances. Changing the beneficiaries of your life insurance or will, or even adjusting your accounts, will be dealt with as part of your legal proceedings.
Taking your divorce and finances into your own hands and making these changes yourself will not go down well. It could even put you at risk of a criminal contempt charge.
5) Not Preparing Your Documentation
Credit statements, tax returns, pay slips – the documentation most of us have stored away over the years can seem overwhelming. If you’re starting to organize your divorce and finances, you should try to sort through as much of it as possible.
Your lawyer is going to ask for various financial documents as you work through proceedings together. Being able to access your documentation quickly will reduce your stress and make the process much more efficient for everyone.
6) Not Paying Off Your Joint Accounts or Credit Cards
As part of a married couple, the responsibility of your joint accounts lies with both you and your spouse. If you don’t close these accounts as soon as you separate, you’ll still share the responsibility – meaning that if your ex-partner runs into debt, it will affect your credit score as well as theirs.
You should also notify your joint creditors, in writing, that you and your partner have divorced. Request that once you’ve paid off the balance, the credit accounts are closed. This will prevent them from being used – and potentially abused – by your ex-spouse.
7) Not Researching Your State’s Divorce Laws
Divorce isn’t something that anyone plans, until their marriage has broken down to such an extent that it’s inevitable. As a result, many people aren’t aware of the divorce laws in their home state. But it’s important to familiarize yourself with them as soon as you think a divorce is on the horizon.
These laws will affect the way the court decides your divorce and finances. For example, some states are known as ‘community property states.’ That means anything you’ve acquired during your marriage is considered joint property that belongs to you and your partner equally. These states include:
- New Mexico
8) Overlooking Tax Implications
Any divorce will have implications for the tax you and your partner will have to pay (or not pay) once you’ve separated. There are all sorts of tax-related issues you’ll have to solve, from whether your attorney fees are tax-deductible, to which of you will get the tax exemption for your dependents.
Child support is non-taxable, but only if it’s been officially decreed during your divorce settlement. Ensure that you’re aware of all the tax issues that may arise after your separation so that you can have an accurate idea of what your income and outgoings will be.
9) Taking Financial Revenge On Your Ex
Divorce may be an emotional process, but it’s also a legal one. If your marriage hasn’t ended amicably, it can be tempting to take revenge on your ex – and money might seem one of the best ways to do it.
Whether it’s selling off their belongings or refusing to be transparent about your finances, these acts of anger will harm you as much as your partner and children. The court will take a dim view of your attempts to manipulate your divorce and finances, and may penalize you when it comes to dividing assets or even custody.
10) Not Being Honest With Yourself
Just as you shouldn’t attempt to deceive your partner when it comes to sorting your divorce and finances, you shouldn’t lie to yourself. If you feel resentful towards your spouse, you might convince yourself that you don’t want to touch their money. Alternatively, you might want to take as much as you can and run!
The most important step when handling divorce and finances is to know what you’re entitled to, regardless of whether or not you have children. Don’t let your emotions cloud your judgment. Instead, be honest with everyone involved, including yourself, about your current financial situation.
If you know you’re going to struggle, make sure that your pride doesn’t stop you from fighting for what you’ll need in the future.
Separation can be a messy process. But by knowing what steps to avoid, you can take control of your divorce and finances and look forward to a brighter future.
Matt Woodley is a recognized credit expert and the founder of Credit Informative where he writes about all things credit. Credit Informative is a consumer credit resource website providing unbiased and actionable advice on how you can repair and build credit. www.creditinformative.com