As mentioned in Part 1, it is important to avoid the ten biggest divorce financial errors during settlement negotiations. Consult with a financial divorce specialist to protect yourself and your children financially. Part 2 will cover the second 5 of 10 mistakes.
6 – Poor Budgeting
It is common for a divorcing spouse to underestimate living expenses when drafting the first budget for temporary alimony, resulting in the inability to pay for all expenses. A financial divorce specialist will be able to assist in making a budget that is comprehensive and complete.
7 – Rejecting Mediation
Divorcing spouses willing to compromise by being financially transparent can save thousands of dollars in legal expenses and avoid further emotional anguish. Receiving assistance from a neutral third-party mediator, typically an attorney trained in mediation with expertise in family law, a divorcing couple can reach a completely voluntary agreement, avoiding an adversarial and costly process through the courts.
8 – Underestimating Taxation
Taxes may have to be paid for marital assets received after a divorce settlement. Consequently, it is important to calculate the value of assets of a property division proposal on an after-tax basis. A financial divorce advisor or a tax accountant can provide valuable advice regarding the minimization of taxation. It would be mutually beneficial for divorcing spouses to work together in lowering their liabilities.
9 – Using Lawyer to Punish
With their fees averaging hundreds of dollars per hour, using a divorce attorney to punish an estranged spouse is a very expensive endeavor. It is also mostly fruitless. Courts usually will not punish a spouse financially except in the most egregious situations. Retaining a therapist to address emotional issues or hiring a financial planner to assist in financial aspects would be far more useful and cost effective.
10 – Spouse’s Social Security Unaccounted
After a marriage of 10 years or more, the spouse who earns less is entitled to receive derivative social security benefits based on the higher-earning spouse’s contributions. Such derivative benefits would not decrease the higher-earning social security payments. It is especially interesting that the average marriage for divorcing couples lasts 9.5 years. If you’re going through a divorce and getting close to 10 years, waiting a few more months will result in greater retirement options and no reduction in payments.
Professional Guidance for Divorcing Individuals
John Faggio, CPA, CFP®, CDFA™, is a Financial Divorce Specialist. Faggio Financial helps divorcing individuals reach an equitable financial settlement in a professional, cost-effective, and expedient manner. Call (410) 884-4098 for professional guidance today.