While you are likely already stressed out about your upcoming divorce, don't allow yourself to make some bad financial moves that could end up affecting you and your children for a very long time. If you plan carefully and make good decisions during this time, you could help ensure a solid and secure financial future. Read on to learn about the 5 financial no-no's to avoid during your divorce.
1. Fail to budget. Whether or not you have hands-on training in budgeting, you are facing a new financial situation with very different incomes and expenses. Take some time to do a realistic budget before your enter into a divorce agreement. You need this info ahead of time, before you make decisions about the deposition of debt and property. Take a close look at your new expenses and your new (one-person) income. The need to make other tough financial decisions like getting a job or selling your home can become more apparent with these calculations.
2. Desire for the family home. It's only natural to try to stay in the family home, especially if you have children. No one wants the disruption that moving could bring, but you should take a careful look at the financial ramifications of this potentially expensive decision beforehand. Not only should you consider the mortgage payment each month, but the often overlooked expenses of the homeowner's insurance, property taxes, repairs and maintenance. Did you know that the average replacement of a home heating and air-conditioning system can cost from $1,900 to $5,100? And, it should be noted, that price doesn't include labor.
3. Failing to look at an asset's true value. Some assets depreciate, or lose value, over time (such as vehicles). Some assets, however, may be more valuable than they may first appear. For example, that beach cottage may be small and run down, but failing to take into consideration the potential for a steady rental income for that asset could mean leaving serious money on the table.
4. Failing to address joint credit card debt. If you have a credit card with both of your names on the account, the creditor can come after you when your spouse fails to pay the bill. Make it a priority to pay off any jointly held debt prior to the divorce to save you from some financial heartache in the future.
5. Ignoring the financial benefits of a QDRO. A Qualified Domestic Relations Order (QDRO) allows divorcing spouses to take advantage of a little known perk: the ability to withdraw retirement funds without paying a penalty. You can take a portion or all of the funds in your spouse's 401(k) account and avoid penalties and taxes, as long as you "roll over" the funds into another qualified retirement account before tax day.
For more information about financial moves to make during your divorce, speak to your divorce attorney. Contact a firm like Madison Law Firm PLLC to get started.