Going through a divorce is one of the most heart-wrenching experiences in an individual’s life. The emotional toll and social stigma of ending a marriage are further complicated by legal proceedings and custody battles. Amidst this rigmarole, finances often take a backseat.
But it’s worth keeping in mind that the end of a marriage also involves a wide array of financial consequences. Irrespective of how long you’ve been married, chances are you’ve accumulated a plethora of assets, both tangible and intangible, with your spouse.
Fair division of these assets is important for making the divorce less stressful. Also, you might have applied for loans together or held joint retirement assets. Then there’s the entire issue of child and spousal maintenance, as well as associated taxes.
Despite the emotional toll of a divorce, it’s important to watch your finances for a better future. In this blog, we’ve compiled a list of the most common financial mistakes people make during a divorce. Also, we’ve outlined helpful ways to avoid them. Let’s take a look.
1. Not Evaluating Your Financial Situation
Before you start splitting any assets with your spouse, you should get a thorough assessment of your financial situation. It’s a good idea to consult a certified financial planner who will help identify your individual and joint assets.
At this point, it’s important to take a closer look at your income, savings, and retirement assets as well. Also, you should get your credit report from a reliable reporting agency. It’ll give you a fair idea of everything you owe to creditors, including joint debts with your spouse.
2. Getting Emotional About Real Estate
Depending on the duration of your marriage, you’ve likely bought one or multiple houses with your spouse. You could also be sharing a mortgage with them. But when it comes to your home, it might be difficult to perceive it as an asset.
Don’t be surprised if you get emotional and decide to forgo any equity of your house. Worse still, you could end up agreeing to keep your name on the mortgage while letting your ex stay in the house. That means you’ll be held liable if they fail to make mortgage payments on time.
These actions could further jeopardize your financial status, and take a toll on your credit score. That’s why it is a good idea to explore options to remortgage your real estate assets.
Remortgaging or refinancing your mortgage is a straightforward way to remove one of the spouses’ names from the mortgage. However, make sure you check with the existing lender about any penalties or early repayment charges you need to pay for closing the mortgage before term.
You could also consider a remortgage deal when you or your spouse need to purchase new property. It’s equally useful when one of the spouses chooses to take complete ownership of the house.
If refinancing your mortgage isn’t a viable option, you could consider selling your real estate assets and splitting the proceeds.
3. Not Planning for the Future
Thinking about the future won’t be your priority when your present circumstances are filled with uncertainty. But it’s worth remembering that a divorce can cause significant changes to your current financial status.
If you were the low income-earner in the family, you might have to rely on support from your ex. On the other hand, if you earn more, then you’ll suddenly find yourself covering the expenses of two households.
In either case, you’ll need to identify new income sources. It isn’t surprising that most individuals need to increase their income by nearly 30% to maintain their standard of living after a divorce.
It’s a good idea to re-evaluate your monthly budget, and identify ways to cut expenses. Also, you’ll need to find new investment strategies to fortify your savings. Similarly, you might have to take a closer look at your retirement plan, and save more money to secure your retired life.
Turning a New Leaf
Going through a divorce is a life-altering experience. While it’s going to be an exhausting and nerve-racking phase, you should think of it as a new chapter. And as with any fresh start in your life, thorough planning is the key to making it a success.
Get professional help from a financial planner to understand your finances, and identify the best ways to divide your assets. Also, devise ways to maintain your standard of living after the divorce. Don’t forget to remortgage your home or sell it altogether before finalizing the divorce.
