7 Money Mistakes to Avoid During a Divorce

Divorce can easily become an expensive process, especially for one that lasts months or years. It can become tempting to radically change things about your life and living situation during the divorce process, but there are some changes you shouldn’t make or should make with extreme caution.

 

Here are 7 money mistakes to avoid making during your divorce:

Making Rash Financial Decisions

You’re going to have to live your life in the midst of a divorce, and that means spending money. Spending money on food, daily necessities, even vacations and gifts is fine, but there are some money decisions you might want to hold off on making until your divorce is finalized.

If you can avoid it, it’s best to not take on any new non-consumer (non-credit card) debt during your divorce. So, purchasing a new house or new car, unless it’s an absolute necessity to your daily life, should probably wait. If going back to school to advance your career or find a job is necessary, consult with your attorney before applying for student loans. Taking on new debt during a divorce complicates the separation of assets and debts that happens, which can make the whole process take longer. [1]

Before making any big financial decisions, it’s best to consult with your attorney to see how it might impact your divorce.

Quitting Your Job or Remaining Unemployed

It can be tempting to quit your job or reduce your hours to make child support or alimony payments come out in your favor. Or, if you are currently unemployed, you may think remaining unemployed will mean better child support or alimony calculations. This is false.

Suddenly decreasing your income, or not attempting to find work, while in the middle of a divorce could cause the court to look unfavorably on you during divorce proceedings. Sometimes, the court can even impute your income – or make an estimate of income you should be making based on various factors – which could mean your child support or alimony payments will look worse than you initially thought. [1]

Not Securing Alimony or Child Support

If you expect to receive alimony or child support payments as part of your divorce, have you thought about what may happen to those payments if your ex-spouse dies? It may seem grim, but protecting the financial future of yourself and your children is important. Taking out a life insurance policy – and, if you can afford it, a long-term disability policy – on future alimony or child support payments is crucial to protecting that source of income in the event of a tragedy.

Consult with your attorney about how much insurance you may need, and whether maintaining life insurance should be a requirement of your divorce settlement for your spouse. [2]

Overspending on a New Partner

Finding a new love interest can be exciting, especially if you felt something was missing from your marriage. And it can easily be tempting to shower your new partner with gifts and dates, as many people do during the beginning stages of a relationship.

This is risky if you’re in the process of a divorce, however, because a court can view your actions as attempts to deplete marital assets. That could spell bad news for any assets you might receive in the settlement, and any debts you’re required to shoulder. [3]

Forgetting to Change Beneficiaries

Chances are you started a variety of financial and insurance accounts during the course of your marriage – life insurance, disability insurance, retirement accounts – and that your current spouse is a primary beneficiary. Failing to change your beneficiary designations could mean your ex-spouse gets those assets if something happens to you before the divorce.

Take some time to list and account for all your insurance policies and financial accounts, and make sure you know which accounts have a named beneficiary. Consider changing any beneficiary designations to your children or an adult family member to avoid giving your ex-spouse a windfall. [1]

Not Separating Accounts Soon Enough

In many marriages, financial accounts are held jointly or at least linked so both spouses have access. It may feel convenient to leave them linked after a separation, especially if you still live in the same household, but that could spell trouble.

Since you both have access to the accounts, your spouse could remove money without your permission, leaving you with no money and no recourse to get that money back. Opening a separate bank account where you deposit paychecks and other money keeps your assets protected; you can still maintain the joint account for household needs and deposit into it as necessary. [3]

Not Weighing the Options

You are likely to be presented with a variety of financial settlement options during the course of your divorce, offering up different shares of assets and debts. Each of these scenarios can present unique challenges to your personal and financial future, whether good or bad. These challenges include increased or decreased taxes, increased or decreased retirement savings, and increased or decreased shares of a business.

Not taking the time to carefully consider a proposal that’s placed on the table and talk it over with your attorney and any financial advisors you may have could be disastrous down the road.

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[1] Cahn, Lauren, “15 Money Mistakes to Avoid During a Divorce,” Readers Digest.

[2] “Financial Mistakes to Avoid when Getting Divorced,” Protective Life.

[3] Detweiler, Gerri, “6 money mistakes to avoid in a divorce,” CBS News.