Avoid Financial Errors In Divorce
During divorce, people may hurt themselves financially by prolonging their disputes, failing to assess the whole settlement and overlooking costs or assets.
Divorce can be a significant economic burden, no matter how smoothly the process proceeds or how financially conscientious each spouse is. After separating, many people in Massachusetts must adjust their standard of living and long-term plans substantially to accommodate the setbacks that divorce causes. This makes it important for spouses to be aware of the common mistakes that can make divorce even more financially difficult.
1. Inaccurate budget
Many divorcing spouses fail to realistically assess the expenses that they will face during and after the separation. This can cause them to exceed their budgets during litigation or fail to seek settlements that meet their needs. Spouses should always keep in mind the following costs:
· Divorce-related expenses – These may include filing fees and attorney’s costs. Spouses may also have to pay for the services of other professionals, such as forensic accountants, child psychologists or experts in business valuation.
· Increased costs after divorce – Spouses who are living on their own often pay more on a per-person basis for necessities such as housing and insurance.
· Novel costs – Spouses may also have to deal with special costs arising indirectly from the divorce. For example, the liquidation of certain assets may incur taxes and fees. Maintaining a room, clothing and toys for a child at two houses will also create extra costs.
In addition to these expenses, spouses should build room into their budgets for unexpected or emergency costs.
2. Forgotten taxes
When budgeting and deciding what type of settlement to pursue, spouses should always keep the tax implications of divorce in mind. Once taxes are factored in, certain assets, such as tax-deferred retirement accounts, may be worth significantly less than they initially appear to be. Spouses should also remember that alimony is taxable to the recipient and tax-deductible to the paying spouse, whereas child support is not.
3. Added expenses
Prolonged litigation can significantly reduce the marital assets that are left for each person to divide. While it is important for spouses to protect their rights and seek fair settlements, excessive fighting may be unwise. Drawing out a contested divorce in an effort to “win” or hurt the other person may ultimately harm both parties.
4. Tunnel vision
It is not uncommon for spouses to focus largely on short-term goals or on one part of the settlement, such as securing custody or keeping the family house. However, spouses should look at each aspect of a settlement and evaluate how well it all fits together. For example, the terms of property division may influence whether alimony is awarded, and child support obligations are based on child custody and visitation arrangements.
5. Overlooking assets
Finally, many people in Massachusetts lose out financially during divorce because they are unaware of their rights. For example, spouses may not understand that almost all property acquired by either party during marriage – including individual income, retirement benefits, physical assets and real property – belongs legally to both spouses and must be distributed equitably. These spouses may consent to settlements that do not fully reflect their property rights.
To avoid this outcome, divorcing spouses can often benefit from seeking the aid of a lawyer early on. An attorney may be able to advise a person of potential financial pitfalls and pursue a settlement that serves the person’s long-term interests.