By Joe Gross, CDFA®
Divorce is hard enough without divorce settlement mistakes causing more stress and regret. But it doesn’t have to be that way. Here are 5 common divorce settlement mistakes we see and what you can do to avoid them and be on your way to a brighter future.
1. Failing to Budget for All Lifestyle Expenses
The number-one divorce settlement mistake we see is failing to budget for all lifestyle expenses in the aftermath of divorce. Whether you were married for one year or 30 years, it can be extremely hard to unravel your finances during a divorce. You may find yourself navigating decisions (and bills) that you didn’t have to think about when you were married. This is why it’s so crucial to make a spending plan in the early stages of the divorce process.
Make a list of all your lifestyle costs, including housing costs, utilities, food, transportation, clothing, childcare costs, and entertainment. Be as detailed as possible and use this information throughout your divorce proceedings to advocate for what you will need to ensure a smooth transition into your post-divorce future.
2. Not Fully Understanding the Settlement Terms
When assets are divided, they are usually divided according to monetary value regardless of how easily accessible that money is. For example, the value of a shared home may be significant, so it’s assigned a high value in the division process. But you can’t easily withdraw cash from a home’s value and will still need to pay for the mortgage and maintain the home. Therefore, one of the most common mistakes in a divorce settlement is failing to understand the terms of your settlement and how the assets received will affect your finances long term.
3. Neglecting to Create a Long-Term Financial Plan
Similarly, failing to create a long-term financial plan in the wake of a divorce is another common mistake we see. Just like you should make sure you have a budget going into divorce, you should also create a long-term financial strategy for the years following divorce.
The truth is, your financial goals as a newly single individual will differ greatly from your goals as a couple. Not only that, you will have access to different financial resources than you did when you were married. While not necessarily a bad thing, it will certainly have an impact on how you spend your money in the future. Proactive financial planning can be an effective way to make the most of what you do have and help you build a confident financial future.
4. Overlooking the Tax Implications of Your Settlement
Additionally, overlooking the tax implications of your settlement—especially the varying tax rates on different types of assets—can play a role in your financial future. Unfortunately, we’ve seen financially savvy people offer seemingly attractive settlements to their ex-spouses under the guise of goodwill. But by failing to disclose the tax burden of the assets they’re offering, they actually walk away with the better deal. Familiarize yourself with the tax rates for illiquid assets such as investment accounts and real estate property if you plan to sell those assets for cash flow.
5. Navigating Divorce on Your Own
Lastly, be sure to include your entire team when making a decision about the divorce settlement. We’ve seen many clients make settlement decisions based only on advice from their attorney without involving their financial professionals at all. This may be a good decision from a legal standpoint, but it is a big mistake when it comes to your finances. There are many intricacies that come with a divorce settlement. From cash flow to taxes to alimony, a divorce settlement can have lasting financial consequences. Reviewing the settlement with a trusted financial advisor can be a great way to make sure you’re making the best decision for your needs.
Partner With a Professional
Even under optimal circumstances, divorce is tough. You may hit snags and face unforeseen situations during this process, so having a team of experts behind you is never a bad idea. At JGP Wealth Management, we can provide the support you need to navigate the divorce transition with confidence. We will help you look at the big picture and analyze how each financial decision impacts other decisions, especially from a long-term perspective. If you’d like to partner with a financial planner who understands your unique needs and inspires you to be more confident in your financial decisions, contact Joe today at 503-446-6450 or firstname.lastname@example.org.
Joe Gross is first vice president and senior financial advisor at JGP Wealth Management, an independent, fee-based financial advisory firm in Portland, Oregon. With over 25 years of experience under his belt, Joe is passionate about putting his clients first and helping them stay focused on their financial goals, inspiring confidence in their future. As a Certified Divorce Financial Analyst® professional, he specializes in addressing the unique financial issues of divorce. Joe is known for his tenacity to keep clients on track toward their dreams and for his attention to detail, which is second to none! His clients know that nothing will slip through the cracks when working with Joe!Joe graduated from the University of Arizona with a bachelor’s degree in finance. Outside of work, he enjoys being involved in the community and is actively involved with organizations close to his heart. Joe is a former president and current board member of the ALS Association of Oregon and Southwest Washington and a long-time member of The Multnomah Athletic Club. In his free time, he enjoys fly fishing, spending time with his family, and cheering on his alma mater, the University of Arizona. To learn more about Joe, connect with him on LinkedIn. You can also watch his latest webinar on How To Pick Up The Financial Pieces After Divorce.