Top 3 Divorce Settlement Mistakes
After the decree is final it’s too late to change the divorce settlement. Please let me help you make smart choices based on good information. These are the top 3 mistakes you want to avoid:
#3 – The settlement doesn’t take the tax impact into effect!
Really? We all know that Uncle Sam will take as much as he can get. DO NOT agree to a divorce settlement without knowing the tax implications! Without looking at the tax implications of settlement options, you are potentially giving away a lot that you could keep. People often find the tax burden on their half of the marital assets is significantly higher than their spouse’s, making their “half” of the assets worth significantly less than they thought! And DON’T expect your attorney or mediator to do this! They are NOT accountants or financial advisors and a lot of them don’t even know what they don’t know. Buyer beware.
#2 – Pensions are split 50/50 and no one knows how that will actually play out.
Many times, divorce settlements order pensions split and no one understands specifically how that will actually happen. Sometimes one of the largest marital assets is the pension and no one knows what it is worth, how it will be paid out, or if there are any options to consider. When do you start collecting? Can you collect before your spouse retires? Will the amount change if your spouse retires early? Is there an option to take a lump sum? Will there be a cost of living increase each year? What if you or your spouse dies? Will it keep paying? Will it double? When we ask these questions, no one has ANY IDEA what the answers are. You can’t intelligently agree to a settlement without having all the information. Again, don’t expect attorneys or mediators to ask these questions.
#1 – The biggest mistake is keeping a house you can’t afford.
The income that once supported one household is now going to have to stretch to cover two households. You may be emotionally tied to the family home and really want to stay in it. But, before you even consider that, you must do a budget. You don’t want to get one or two years down the road, run out of cash and realize that you can’t sell a door to put food on the table, and you can’t refinance because now you don’t have enough income, and you have no choice but to sell. The selling costs will be about 8% of the sale – which WOULD have been split 50/50 with your ex if you had sold as part of the divorce. Bad situation – and completely avoidable.
One of the smartest things you can do is to realize YOU DON’T KNOW what you don’t know. Bring in the right experts for your divorce to make sure that you make the best decisions you can with ALL the information! Don’t go this alone. Let us help.
About the author:
Bev Banfield is a CPA, Certified Divorce Financial Analyst®, and founder of Banfield Divorce Financial Advisors. The Denver-based company was established to help divorcing couples more easily and equitably separate their finances. Banfield has more than 30 years of experience in financial analysis, budgeting, and auditing. Contact us for more information at (303) 482-1726 or firstname.lastname@example.org. Connect with me on LinkedIn https://www.linkedin.com/in/bbanfield/