Going through a divorce is challenging emotionally, mentally, and financially and is often legally complex. The choices you make during this time can have a long-lasting impact on your finances, especially when you and your spouse’s finances are intertwined.
While you may feel comfortable navigating your divorce independently, there are many benefits to seeking the advice of an experienced divorce attorney and a qualified professional financial advisor.
This article will discuss some of the biggest mistakes people commonly make by divorcing spouses and how you can avoid them.
Common Financial Mistakes
Understanding how to protect your assets in California during a divorce will significantly impact your long-term financial situation.
1. Underestimating Your Expenses
You may know how much money you make each month, but have you taken the time to write down your expenses and create a realistic budget? Many people forget to include many of the more minor costs that, when added up, will be a considerable amount of money. Inflation is another crucial factor when estimating your future needs and maintaining your quality of life.
2. Determining Who Will Keep The Custodial Home
The decision about whether or not to keep the family home, especially if there are children involved, is an emotional issue. Even though it may feel more comfortable to remain where you are and avoid the costs and hassles of moving, keeping the family home may not be the best financial decision. It is essential to have a realistic sense of whether or not you can afford to keep it, no matter how attached you are to your home. You could have serious financial issues if you give up other important things to keep your home and later realize you can’t cover the mortgage, maintenance, or property taxes.
3. Equal Division Of Property, Is Not The Same As Fair Division Of Property
It is vital to understand that an asset value may not necessarily be defined or limited to its current market value. An example of this would be assets that generate income, such as a rental property that may be worth more than its market value. If you agree that each spouse should receive property of equal monetary value, It doesn’t always mean that the assets each spouse received would be an equal share of assets over time. When comparing assets or trade assets in a divorce negotiation, it is also necessary to pay attention to present value, tax basis, transaction costs, and possible future value.
4. Examine Financial Issues One At A Time
While it may seem like deciding on financial issues one at a time is the easiest way, you can miss the interaction of taxes, investment losses, capital gains, inflation, timing issues, etc. To determine a fair settlement, you must look at a comprehensive picture that includes all of your finances. When you look at a complete picture of your finances and assets, you’ll be able to understand better how each financial decision you make may impact another decision. Gathering this information together is the best way to determine how and when to divide assets.
5. Failure To Include Insurance In Spousal Support(Alimony) And Child Support
You will only be able to collect child support and alimony if your spouse can make the payments. Consider requesting that your spouse include life insurance or disability insurance policies or modify existing policies to ensure that these payments will continue during their death or disability. Have your divorce attorney review the policies to ensure that your spouse accurately designates what happens with any money that may come from the insurance policies.
It is also essential to understand that these policies will not help you should your spouse voluntarily decide to stop paying alimony or child support. In this situation, you would need to return to court and request an order that your spouse make the agreed-upon payments.
6. Misunderstanding Your Liability For Unsecured Debt
Generally, unsecured debt is related to credit cards in most cases. If the debt was created during the marriage, it is a shared liability, no matter which spouse utilized the credit card. Both parties are responsible for the debt when getting divorced, and credit card companies can come after you.
7. Improper Evaluation Of A Defined Benefit Plan
A defined benefit plan(DBP) is a true pension plan funded and controlled by the employer and pays a monthly income at retirement. Individuals with a DBP must wait until retirement to receive payment; however, the DBP has value today, and the nonemployee party is entitled to part of the DBP. Most of the time, you will need to hire an actuary who is a specially trained financial expert to determine the present value of DBPs.
8. Including A Qualified Domestic Relations Order (QDRO)
A Qualified Domestic Relations Order (QDRO) is a legal document that states how you and your spouse have agreed to divide a defined contribution plan such as 401(k), 457, and 403(b) plans or pension plans. A QDRO will order the plan administrator to pay the non-employee their agreed-upon share. The plan administrator cannot make any payments without a valid QDRO. Getting a QDRO in place is crucial even if the pension is not payable for several years.
9. Having Unrealistic Ideas About Investment Returns
Make sure to get a professional opinion for any investment in question that may or may not grow over time to mitigate the risks of staying with risky investments and ending up with negative results. Liquid assets such as cash or things that can be converted can offer more financial security.
10. Not Considering Your Long-Term Financial Security
When you are getting divorced, sometimes you only look at your current financial situation instead of looking 10 to 20 years later. Consider working with a financial planner and experienced divorce attorney to ensure your agreements will be in your best interest in the long term.
We Are Expert Divorce Attorneys, Experienced In Family Law
Azemika & Azemika specializes in divorce law, family law, child support and custody, and adoption, and our attorneys are experts in California divorce laws. We support the community of Bakersfield, California, and our partners are here to help you navigate the complexities of family law to protect your rights. Contact us today for a consultation.