by Brie Reyes
Divorce can be costly in different ways. Not only is it emotionally draining but it’s also time consuming and can end up costing you a lot of money. While divorce is never easy, there are some common financial mistakes that make the process even harder.
1. Settlements Should Take Taxes or Penalties into Account
Before you take a settlement, you need to think about how taxes or penalties are going to play into the decision. An example would be someone who takes a settlement from a spouse’s IRA to his or her own IRA. If you are still under the age of 59.5, you would have penalties every time you take a distribution. You wouldn’t be able to live on this money while you get other finances sorted. Just because everything looks fair and right at first doesn’t mean that it will be after taxes.
2. Underestimating Your Post-Divorce Expenses
It can be hard to be realistic, especially during this time of uncertainty about everything. However, not being realistic about post-divorce expenses can lead you to hold onto assets that you might not be able to afford in the long term. A popular example of this is when somebody has won the house. They wanted the house and they got the house. However, five years down the line the spouse that got the house may not have enough liquid cash. This leads to a situation of selling the house, perhaps when it is not the best time, and could mean paying taxes on a gain. It may have made more sense to sell the house during the divorce proceedings.
3. Letting Emotions Guide Your Decisions
Mediations can be long and rough. Divorces can also be contentious and drag on. There is a point where many people just want to get it over with. This can lead you to agree to something when you are emotional, just to be done with the process. This won’t be the best settlement for you. While a 50/50 split may be equitable, it may not be the best for your situation since you haven’t looked at the taxes. In order for you to truly understand what your financial future is going to look like after you have made the decision, you need to be able to sit back and look at everything with a clear head and not after you are emotionally drained.
Avoiding these mistakes can mean a better settlement for the entire family. It’s important to have a strong team and know which assets are going to be the best pick for you. Thinking about taxes ahead of time will put you in a much better situation than if you just went into the process blind. By having this forethought, you can avoid the emotional situations and be in a much healthier position after your divorce.