Divorce is one of the most stressful experiences in life -- emotionally, physically and mentally. But there are some ways to help mitigate its negative effects in at least one area -- financially. By avoiding a few common mistakes, you can protect yourself during a divorce and set yourself up for a better recovery. Here are the 5 top ways to avoid mistakes in this process.
Inventory Assets
In most relationships, one partner has a better idea of the state of the family's finances and assets. Make sure you are on equal footing with your spouse by understanding what your financial situation really is. Round up information on all assets -- including insurance policies, investment accounts or properties, valuable personal items and retirement accounts -- so you can know what to expect and what you might be left with.
Don't Hide Assets
Hiding money or other assets from your spouse when considering or filing for divorce is a quick way to turn a difficult proceeding into a nightmare of acrimony and legal problems. Hiding assets in divorce is not only a bad idea, but it's also illegal. If the result goes badly, it could mean a worse settlement for you, contempt of court rulings or fraud charges.
Don't Cling to Your House
Many people going through a divorce try to maintain a sense of normalcy or a feeling of home by trying to keep the home they are living in. But because housing choices were likely made with two people's income and needs in mind, it may be the wrong choice for only one person to keep on their own. Trying to keep a home you cannot afford in your new situation is likely to make your finances worse and worse over time -- often resulting in the loss of the home later on along with financial ruin. Before fighting to stay in your home, assess honestly whether you can afford the mortgage, maintenance, taxes and upkeep.
Create a New Budget
Caught up in the emotional and family difficulty of a divorce, you may not be focused on planning for your new financial life post-divorce. You may not even be sure how to start. But understanding your actual expenses and creating a new spending plan is one of the most important ways to keep you on the right path going forward. There is a lot of help online to get you started. Be careful not to overestimate any help you may get from your ex-spouse or to underestimate your new expenses.
Do Tax Planning
Divorce changes a lot about your taxes, so it's wise to work with a qualified CPA (certified public accountant) to understand these changes. Your tax changes will likely include new filing statuses, decisions about how to claim any children or dependents and a change in income levels. Depending on your situation, you may also need to understand how lump-sum payments, investment portfolios or retirement account changes will affect your tax bill over the next few years.
Avoiding mistakes in these 5 areas will go a long way to helping you get your finances and life put in good order both now and when your divorce is finalized.
Share15 December 2015
Accounting is the absolute most important element of running a business. If you mess up the bookkeeping even the slightest bit, the entire business could be in trouble. I know how costly a small bookkeeping error can be. About three years ago, I made a seemingly small mistake in the financial records for my business and the next year when I filed my taxes, things were very bad for me. What would have required a small tax payment had suddenly turned into a big tax bill and quite a headache. Since then, I have worked with an accountant and things have been better.