Top 5 Financial Divorce Mistakes: Is This You?

Divorce is a challenging process, emotionally and financially. Amidst the upheaval, financial missteps can easily occur, potentially impacting your financial future for years to come.

A calculator and pen rest on top of financial documents filled with investment calculations and handwritten notes, emphasizing analysis and planning.

As a Certified Divorce Financial Analyst (CDFA®) and mediator, I’ve seen how avoiding these common mistakes can lead to better outcomes for both parties. Here are the top five financial mistakes to watch out for during a divorce:

1. Overlooking the Long-Term Implications of Asset Division

Dividing assets isn’t just about achieving an equal split; it’s about understanding the future implications of what you’re keeping. For example:

• A house might seem like a valuable asset, but maintaining it could strain your finances due to mortgage payments, property taxes, and upkeep costs.

• Retirement accounts may carry tax penalties and withdrawal restrictions, making their value different from cash savings.

When dividing assets, consider liquidity, tax implications, and long-term growth potential to ensure a fair and sustainable division.

2. Failing to Account for Hidden Expenses

Divorce often comes with unexpected costs, such as:

• Attorney and mediation fees

• Costs associated with selling or refinancing property

• Expenses for setting up a new household

These costs can add up quickly and leave you in financial distress. Creating a detailed post-divorce budget early in the process can help you anticipate these expenses and plan accordingly.

3. Neglecting Retirement Planning

It’s easy to focus on immediate needs during a divorce, but neglecting retirement planning can have serious consequences. If retirement accounts are divided, ensure the transfer is executed correctly to avoid taxes and penalties. Use a Qualified Domestic Relations Order (QDRO) when necessary and revisit your retirement savings strategy to stay on track.

4. Overestimating Your Post-Divorce Lifestyle

Many people underestimate the financial adjustments required after divorce. Living on one income instead of two often means significant lifestyle changes. Overestimating your ability to maintain the same standard of living can lead to debt and financial instability.

Be realistic about your post-divorce income and expenses. Work with a financial professional to create a feasible budget that aligns with your new reality.

5. Making Emotional Decisions About Money

Divorce is emotionally charged, and financial decisions can often be influenced by anger, guilt, or fear. For example:

• Insisting on keeping the family home for sentimental reasons, even if it’s unaffordable

• Agreeing to unfavorable terms to “just get it over with”

Emotional decisions can lead to financial hardship down the line. Approach negotiations with a clear head and rely on financial professionals to guide you through the process.

Conclusion

Divorce doesn’t have to derail your financial future. By avoiding these common mistakes and seeking guidance from qualified professionals, you can navigate the process with confidence and clarity. At FAREWELL, we specialize in helping individuals and couples make informed financial decisions during divorce. If you’re facing a divorce, reach out to learn how we can support you through this challenging time.