Common Financial Pitfalls Of Divorce

Nearly 3 million men and women go through the devastating trauma of divorce each year in the United States. For many of these individuals, the strain is intensified by the fact that they took a “hands off” approach to finances during the marriage. Faced with divorce, these “non-financial” spouses are at a disadvantage when it comes to dividing up the marital estate and planning for long-term financial stability.

But all is not lost. Knowledge is power, and learning about the common financial pitfalls of divorce can help the non-financial spouse face life during and after a divorce with confidence.

Not Identifying All The Assets

For a non-financial spouse, understanding the assets the couple owns can be a challenging proposition, especially if his or her spouse has been secretive with financial management during the marriage. It is no surprise that assets are often overlooked by the non-financial spouse during divorce. Yet even if an asset is unwanted, it has value and can be traded for another asset the non-financial spouse may want. For this reason, it is critically important that all assets be identified early on in the divorce proceedings, even if this means hiring a forensic accountant (a sort of financial detective) to uncover them. Before the divorce begins is an excellent time to start collecting paystubs, bank and investment account statements, insurance policies and any other documents related to finances.

Mixing Money And Emotions

Divorce brings with it an emotional roller-coaster, especially when it comes to marital assets and property division. While it may seem like a good idea to keep the marital home out of spite or nostalgia, any decision on which assets to demand in a divorce should be made on each party’s long-term best interest – not revenge. While the divorcing parties may loathe each other, transferring those feelings to the “nuts and bolts” of issues like property division only benefits the lawyers. At the end of the day, fighting just to fight will only deplete the marital estate.

Not Fighting For A Fair Share

When it comes to property division in divorce, the general rule of thumb is “equitable division.” While this doesn’t necessarily mean equal, it does mean that each spouse is entitled to his or her fair share of the assets amassed during the marriage. Often times, the non-financial spouse is too intimidated or exhausted to fight for his or her rightful share. Yet to ensure long-term financial security, each spouse must stand up and fight for what he or she deserves. Once the divorce is over and the property divvied up, there is no going back to get more.

Inadequate Records

One of the first things any divorce lawyer will ask from a new client is documentation related to the couple’s finances and assets. Copies of bank statements are usually not enough. If a divorce action is contemplated or has already begun, collecting as much documentation as possible is absolutely required. Tax returns, wills, trusts, loan applications and statements, investment and brokerage statements, insurance policies, deeds for real property and credit card statements are just a few of the items that should be located and copied. If a spouse owns a business, obtaining as much documentation as possible related to that business will go a long way towards finding hidden assets.

Ignoring Reality

While it may seem appealing to bury one’s head in the sand in the midst of the chaos caused by divorce, this is one of the worst things that can be done. So is adopting the attitude of “let the attorneys handle everything.” While legal counsel is there to vigorously represent their client’s best interest, only the client knows what is truly important. Taking an active role in the process, including participation in negotiations, focusing on practical matters, and making decisions based on facts rather than emotion, will all go a long way toward creating a strong post-divorce financial future.

Not Enough Cash On Hand

Once a divorce is filed, expenses will explode. Often times, one spouse will leave the marital home, resulting in a second set of living expenses that didn’t exist before. Add to this legal fees, court costs, therapy bills and other unexpected expenses and even a spouse with a good salary will find themselves financial stretched. The best time to financially prepare for divorce is before it begins. This is the time to amass as much cash as possible to help weather the tide.

Not Enough Preparation

A divorce isn’t over in a week or even a few months. On average, most divorces take up to a year to be finalized. In some cases, a divorce can linger on for much longer. Understanding that this is a marathon and not a sprint, it makes sense to prepare properly before entering the race. Anyone contemplating divorce should first consult with legal and financial professionals and educate themselves about the process. Timing is also important. If a spouse is expecting a financial windfall (e.g. annual bonus, stock option grant, etc.), the other spouse filing for divorce before that happens could be a costly mistake. Social security is another consideration. A marriage of 10 years or more entitles one spouse to collect benefits based on the other spouse’s earning record.

Not Mentally Preparing

The only certainty that divorce brings is that lives will be thrown into complete upheaval. It is important to mentally prepare for all possibilities. While the worst usually does not happen, speed bumps along the way can be amplified if they weren’t at least considered beforehand. It is important to consider even the most far-fetched scenarios – a spouse disappears and refuses to pay support, a major illness occurs, all financial resources are drained during the divorce. Thankfully, these “what ifs” don’t often occur. Yet, by thinking through the scenarios puts whatever actually happens is put into perspective. It helps to keep panic at bay.

Failing To Look Forward

For many spouses, their career was given up to raise a family. When divorce occurs, these spouses are disadvantaged in terms of re-entering the workforce. It is important to stay strong and begin developing new skills sooner rather than later. Resources such as career counselors at local universities, job centers or community colleges can help to identify suitable interests and opportunities.

Allowing Panic To Take Control

The divorce process seemingly brings with it a crisis around every corner. Whether it is an unexpected bill, escalating legal fees or a stubborn spouse who challenges every decision, there is no shortage of things that will keep a divorcing person up at night. Countless hours are spent tossing and turning, worrying about all the “what ifs.” Instead of letting these worries become all-consuming – and making poor financial decisions based on fear rather than logic – it is important to find some means of stress relief during the divorce. Whether it is yoga, kickboxing or simply writing down your fears and revisiting them in the clear light of day, allowing panic to take control during a divorce will only have a negative long-term impact.

Ignoring Tax Consequences

A major component of any divorce is dividing up the marital assets. Real estate, retirement accounts and investments each come with their own set of pros and cons, especially when it comes to liquidity and taxes. For example, it may be tempting to want the marital home, but that may not be the best financial decision. Maintenance and upkeep are often underestimated, and it can quickly become an albatross rather than an abode. Likewise, accepting a retirement account instead of cash could tie up assets for decades or more. It is important to consult with an accounting and tax professional to ensure that the full implications – both short- and long-term – of any final property division are understood.

Failing To Get Solid Professional Advice

While it may be tempting to save a few (thousand) dollars by trying to go it alone in a divorce, this is usually a very unsound financial decision in the long run. Divorce can be a very complicated process, and without sufficient legal and financial knowledge rights can be unwittingly given up. Hire the best attorney you can afford – not the cheapest. The old adage, you get what you pay for is usually true. Likewise, consider a forensic accountant if you believe assets are being hidden. A divorce financial professional can also be one of the best investments to secure a solid financial future.

To learn more about how a Divorce Transitional Support Advisor can help you or your client regain financial stability after a divorce, please visit our website at

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