Financial Pitfalls To Avoid During Divorce

Divorce is a stressful time, and one of the more vexing issues can be financial planning. If you can make it a priority to plan, you could be paving the way for a better future for you and your children. Your actions now could mean the difference between just getting by and being financially comfortable, so read on about these financial pitfalls that could trip you up during your divorce.

1. Burying your head in the sand when it comes to viewing your financial situation realistically. This could be disastrous at any time, but especially during a divorce. Take some time to sit down and make a budget that covers the present and into the next year. Make sure that you know your net worth at all times; make a list of your assets (real estate, cash, investments) and liabilities or debts (credit card bills, loan balances), the difference in the two numbers is your net worth, or lack thereof. You will be making major financial decisions during your divorce process, and having a clear picture of your finances is vital.
2. Setting too high a priority on getting the family home. Your home is more than just a piece of real estate, and if you have young children, it's all too easy to just assume that you need the family home to give them a sense of continuity and security. While you may have good intentions, make sure that you have a realistic view of exactly what you may be getting yourself into. Do the math and check your willingness to pay not only the mortgage payments, but mortgage insurance, property tax, homeowners' insurance, and upkeep on the home. If you aren't careful, you'll end up with a home, but little else.
3. Using the present cash value of marital assets, instead of possible future earnings. Some assets will grow in value and bring you greater financial flexibility, such as equity in real estate that could be used for a loan to start your own business.
4. Ending your marriage with joint credit card debt. While a divorce petition can address ownership and responsibility for unsecured debt, creditors are not required to abide by that document. If your spouse fails to pay their credit card debt, you could be held responsible. Make every effort to pay credit card debt before the divorce becomes final.
5. Failing to take advantage of a Qualified Domestic Relations Order. At no other time will you have the ability to remove funds from a retirement account without paying a penalty. You must roll the funds over into a new account to avoid paying taxes, however.

Consult with a family law attorney like Topalian & Associates for more advice on how to remain financially solvent during your divorce.