When you are facing a life changing decision like divorce, what do you think you will find more valuable: Someone to make you feel better by saying that nothing has to change, or someone who will give it to you straight? It worries me that not enough people in the world of divorce professionals will truly tell it like it is. They tell you what you want to hear, which can lead you to make some big mistakes. Easily avoidable mistakes: Mistakes that need not happen!
This process is not easy but I want to properly prepare you for the tough decisions you will have to make. When necessary, I will tell it just like it is. Your household income as a couple will now be supporting two households, so yes, things will change. Let me guide you through that change with some simple points.
Here are a few things that I see when it comes to divorce. Settlements are agreed to (and sometimes even ordered by a judge!) then the people come to me after-the-fact confused and bewildered and I read through their decree and just shake my head. Please, please, please – don’t make these mistakes!!
#3 – The settlement doesn’t take taxes into effect – AT ALL!
We all know that Uncle Sam will dive into our pockets at every opportunity. Absolutely do not agree to a settlement without knowing and understanding the tax implications! What people often find is that the tax burden on their half of the marital assets is significantly higher than their spouse’s, making their “half” of the assets worth significantly less than they thought. More specifically, don’t expect your attorney to do this! Attorneys are not accountants or financial advisors and unfortunately there are some that won’t bother to warn you of that or emphasize the importance to consult with one.
#2 – Pensions are split 50/50 but no one knows what that really means.
Over and over and over I see divorce decrees that order pensions split 50/50 but no one has any idea what will actually happen or any clue as to what the pension is actually worth. An ‘X’ marking a 50/50 division with no dollar associated with it is not a proper division of a pension. You need to get answers to several questions like, when can you start collecting? Is there an option to take a lump sum? Will there be a cost of living increase each year? What if you or your spouse dies? Will it keep paying? Will it double? When I ask these questions, no one has ANY IDEA what the answers are? Really? How can you possibly agree to a settlement without understanding something so crucial to your retirement? Again, do not expect attorneys or mediators to be of much help here. Every Pension is different, and you need to have someone guide you through answering these questions for the specific pension in question.
#1 – Drum Roll – The biggest mistake I see is keeping a house you can’t afford.
I understand you can get emotionally tied to the family home and really want to stay. Before you even consider this option, you must do a budget. I also strongly suggest you meet with a financial planner and more specifically a Certified Divorce Financial Analyst®. I have witnessed where one or two years down the road the spouse who “won the house” has run out of cash and realized that they can’t sell a window to put food on the table, they can’t refinance because now they don’t have enough income, and they have no choice but to sell. The selling costs are about 8% of the sale – all of which would have been split 50/50 with the ex if they had sold as part of the divorce. The primary home is normally one of the bigger assets to split, before agreeing to keep or not keep the house make sure to do your homework and consult professional guidance.
As a Certified Divorce Financial Analyst® my goal is to help bring to light those things “you don’t know, you don’t know”. The purpose of the points above is to outline that there are areas where big and costly mistakes can be made, even in “simple” cases. Do your homework and seek advice before agreeing to any settlement. Don’t go this alone. You only have one chance to get it right! Let us at Next Step Divorce Solutions help you.
Reading your article helped me a lot and I agree with you. But I still have some doubts, can you clarify for me? I’ll keep an eye out for your answers.