It might be the only thing the two sides in a divorce can easily agree on: it's no fun.
On top of the emotional toll, financial missteps during the process can leave you in far worse shape than you intended. And the more intertwined you and your spouse's finances are, the more closely you'll need to pay attention while untangling them.
Ideally, you'll have a divorce attorney and a financial advisor who are advocating for you. Nevertheless, experts say that even if you'd rather spend as little time as possible thinking about the divorce, it's worth making sure you understand the implications of all financial decisions being made.
You are your own best advocate.
If you are among those getting divorced, here are some financial mistakes to avoid.
1. Keeping a home you can no longer afford.
While staying put means one less change in the midst of an already life-altering event, it often makes little financial sense.
Unfortunately, many keep their homes not realizing that upkeep costs are no longer sustainable. There are now two households existing on the same income where previously there was only one.
2. Not considering the tax implications.
Not all financial accounts are taxed the same way.
For instance, if you get the 401(k) plan account worth $100,000 and your ex gets the checking account worth the same, you just got the raw end of the deal. Taking cash from the checking account incurs no tax, while any withdrawals from the 401(k) would be taxed as regular income to you. Most individuals forget to look at the complete cost of each asset, particularly the tax nature of each.
3. Not getting a court order to get your piece of the 401(k).
If your soon-to-be ex has a 401(k) plan, you must have what's called a qualified domestic relations order, or QDRO, to access your share. (Individual retirement accounts do not require a QDRO). This court order, which must get final approval from your retirement plan, marks one of the few times you can take money from a 401(k) without paying a 10 percent early withdrawal penalty. You will, however, pay income tax on the amount if you don't roll it over to an individual retirement account within 60 days.
For more information on dividing financial assets, contact Walsh Law.