When it comes to divorce, the two things that people worry about most are: 1) their children and 2) money. With divorce being a seemingly daunting task, too many people don't do their homework and they end up making mistakes that cost them in the long run.
Below, are six of the top financial mistakes that we've seen people make in divorce. If you get familiar with them, you can avoid making the same mistakes.
1. Not gathering ALL of the financial documents.
If you don't dig up and organize all of the financial documents, it could lead to costly divorce mistakes. You need to get your hands on all of the records to ensure that the budget and balance sheets accurately reflect your financial situation.
2. Not reading and understanding the financial documents.
Gathering all of the financial documents is the first step, next you need to understand them. If reading the numbers is bewildering, you're going to have to take the time to learn them. Otherwise, you run the risk of getting a raw deal. It's your choice.
3. Not hiring a full support team.
If you and your spouse have accumulated significant assets, you'll want to enlist the help of a professional divorce team (e.g. accountants and financial advisors). While your attorney knows the law, they are not a financial professional. If they suggest hiring one, take their advice.
4. Not understanding the tax implications.
It's impossible to know what your divorce settlement is actually worth unless you understand the tax implications of the proposed settlement. If you don't want to be hit with a large tax bill after the divorce, we recommend learning the tax implications of the settlement before you agree to it.
5. Not planning for life after support ends.
Unless you're going to be paying or receiving spousal support for life, you need to plan for when the support payments end. You need to fully understand the terms of the payments, how long the payments will last, and under which terms they can be modified.
6. Not factoring in health and life insurance.
Be aware that insurance can impact your divorce settlement, namely health and life insurance. If you don't include the costs of health insurance in your budget as a single person it can leave you with a large, unaccounted for expense.
Life insurance is very important for securing child support. If you are supporting your kids, what would happen to them if you die? You need life insurance whether you're paying or receiving child support.