Divorce is a highly stressful time for all parties involved and can easily cost participants a great deal of stress and money. Before entering into a divorce mediation or deciding upon filing for divorce, it is important to make sure that you are protecting yourself and acting in your best interest. If you are planning on divorcing your spouse, avoid making the following mistakes:
Assuming that the value of property is what you paid for it.
Real property (i.e., your house, condo, or rental property) may be subject to drastic market price changes over time and, therefore, may be worth more or less than the original purchase price, or may be worth more or less in the future. For example, you may want to keep a rental property that has risen in value since it was originally purchased, but it’s possible that the value will decrease in the future. Therefore, when comparing assets, it is important to consider market changes and how they may affect value.
Personal property (e.g., automobiles, furniture, electronics, and jewelry) usually depreciates in value over time, so the current value will likely be far less than the price you paid for it.
Being unaware of your marital finances.
Being in the dark about your household finances is not uncommon, and nothing to be ashamed of; but if you or your spouse decide to pursue a divorce, that will need to change. It is important that you become fully informed about all assets and liabilities, which may require voluntary (or involuntary) disclosure from your spouse and/or the assistance of a financial professional. You will also need to understand how much income you and your spouse each receive from all sources, and what your fixed and discretionary expenses are. Taking a passive approach to educating yourself about the marital assets could put your spouse at a significant advantage.
Overlooking a Qualified Domestic Relations Order (QDRO).
A QDRO is a court order that advises retirement plan administrators how to divide defined contribution plans such as a 401(k), 403(b), 457 plan, defined benefit plans (i.e., pensions and annuity plans), or any other form of retirement plan that involves an employer making contributions on behalf of you or your spouse. Without a QDRO, you will not be able to receive your share of your spouse’s retirement benefits following your divorce; if you attempt to transfer your spouse’s share of non-IRA retirement benefits without a QDRO, you will have to pay taxes on any amount withdrawn from your account.
Withdrawing money from a retirement plan early could result in a variety of penalties. Before filing a QDRO it is important to have an attorney review it for compliance with the plan’s policies and ERISA regulations.
Underestimating your expenses.
When you and your spouse are separated, you will likely have to begin managing the payment of your monthly living expenses. As a result, you may need to create a budget, or reevaluate your previous budget, depending on how much money you earn, whether you are receiving or paying spousal support and/or child support, and whether your spouse will be contributing to a certain expense (such as the payment of a credit card in your name). Many people going through a divorce may need to streamline their spending, at least on a temporary basis, given that the income sustaining one household during the marriage will now need to support two households.
A financial professional such as a Certified Divorce Financial Analyst (CDFA) may be able to assist you in creating a budget that fits your post-divorce needs.
Not having access to funds to pay for the divorce process.
Divorce is often a complicated and lengthy process that may take an extended amount of time to complete. Most family law attorneys will require a large retainer deposit to secure payment of their expected work for you, so it is best to ensure that you will be able to make a large payment in order to proceed–whether by check, wire transfer, or credit card payment. Some divorcing spouses will ask their parents for a loan to help cover their divorce fees pending a final settlement, when they expect to receive funds from the division of marital assets. You may also be able to request that your spouse pay your attorney fees on your behalf, if you do not have access to marital funds in your spouse’s individual name.
Not understanding that you may be required to contribute to the payment of marital debt.
In the vast majority of cases, any debt that was incurred between the date of your marriage and the date of your separation is considered a shared liability–even if the debt is in your spouse’s individual name–and the court has the authority to allocate payment of the debt between you and your spouse. However, if there are marital assets that can be used to pay off the debt, the ongoing responsibility for monthly payments can be eliminated. And there is no presumption that you and your spouse will be equally responsible for payment of the debt; depending on the nature of the debt, when it was incurred, your respective ability to pay the debt in comparison to your spouse, and a variety of other factors that the court must consider, you may be responsible for payment of 100% of a certain debt, or not responsible at all.
Choosing the wrong attorney.
Divorce is already one of the most stressful life events that a person can go through, so choosing a lawyer who is not going to unnecessarily increase the level of conflict is incredibly important. Your attorney should not be emotionally involved in your case, so they can provide you with a neutral cost-benefit analysis for the choices you face and develop a strategy that meets your goals without encouraging you to have unreasonable expectations.
For divorce attorneys that will serve your best interests, contact Mullett Dove & Bradley Family Law. Our experienced family law attorneys will help you navigate the financial stresses associated with separating households and assist you in getting to the next phase of your life in the most efficient way possible.