The Seven Deadliest Financial Mistakes You Can Make During Divorce
As attorneys who focus on practicing in family law, we see a lot of couples make unwise financial decisions before, during, and after divorce; decisions that can have long-term repercussions on their lives. This is understandable, given that, for many, divorce is a time of emotional upheaval, and it can be difficult to think clearly and do what’s right, financially.
However, it is important that you work with your attorney, and any financial advisers you may have, to make sure that you make rational, practical decisions during this time. Below, we discuss the most common financial mistakes you want to make sure you avoid during divorce:
First and foremost, avoid big purchases like new cars, homes, etc. While you may have been able to afford these items before, you may find that purchases like these now become onerous in the face of bills you will have to cover on your own.
Cashing In On Investments & Retirement Accounts
You should also avoid cashing in on investments and savings you’ve been building, like your 401(k). The most concerning consequences of selling highly appreciated assets and dipping into accounts like these are the tax consequences: you will likely owe substantial taxes as a result of cashing in on them come tax season. In addition, because these are now no longer investments, they may steer you off course from the financial goals you and your attorney mapped out for you. While your goals may change after divorce, it is very important to stick to a strong financial plan. Also remember that cashing in on your 401(k) before you reach the age of 59 ½—even the portion that’s already been taxed—will result in an IRS penalty.
Keep in mind that if you are receiving some portion of your ex’s retirement accounts in the form of a qualified domestic relations order (QDRO), you can put this into your own IRA account and defer paying taxes on it. This is wise for a variety of reasons; to be sure, the last thing that you want is to be placed in a higher tax bracket.
Drastic Employment Changes & Alimony
Another temptation might be to do whatever you can to avoid making alimony payments (such as quitting your job), especially now that the tax benefits have disappeared (for any divorces finalized after December 31, 2018). Quitting your job just to avoid paying alimony is not a good idea.
Grasping Onto the Family Home
One major issue we see a lot of clients concerned over is who will get to keep the family home. While your home might seem like the most important asset in your life, keep in mind that it could be expensive for one person to maintain, and it could also drop in value and become worth less than what you owe (a phenomenon known as negative equity). While it may end up being beneficial for one party to keep it, just make sure that any major decision like this has been well vetted with your attorney so that it is based on practical—not emotional—reasons.
Make Sure You Don’t Choose the Wrong Attorney
You have a bright future ahead of you—all you have to do is make sure that you work with an experienced divorce attorney to ensure that you stay on the right track and can enjoy your new-found freedom. Contact our West Palm Beach divorce attorneys at the office of William Wallshein, P.A. today to find out how we can help.