How to Avoid Costly Financial Mistakes Before, During and After Your Divorce
by Jerry Cohen, CPA, Chartered Financial Consultant, Certified in Financial Forensics, and Certified Divorce Financial Analyst™
Financial issues create enormous stress for divorcing couples at every stage of the process.
There are several common ways to avoid making financial mistakes during the three stages of your divorce. Let me share them here.
Before Your Divorce
It’s important to select the process before you hire the professionals. Don’t hire an attorney, a financial advisor or a therapist before you have decided what type of divorce process works best for your situation. The most common options are to do it yourself (pro per), mediation, Collaborative divorce, and litigation.
Not all divorce professions are trained or experienced in all of the processes available, and may not offer all of them as options to you.
Example: hiring an attorney who works exclusively in the litigation model, where a judge hears your case and renders an opinion. This professional, no matter how skilled, may not be the right choice if you want to stay out of court and participate in more “cooperative” process such as Collaborative divorce or mediation.
- Don’t seek financial advice from friends and family who have been through their own divorce. Every divorce is different. Issues your friends and family faced may not be relevant to your situation and you may be dealing with important financial and legal issues your friends and family members did not.
- Identify the source of funds to pay for the divorce professional fees.
- Identify your financial goals, needs and concerns at the beginning of the process.
- Hire a financial professional who is trained and experienced in the financial and tax issues related to a California divorce. Divorce financial specialists are trained to provide impartial advice to both parties in a Collaborative Process and can act as an independent professional for both parties, as long as they have not worked with ether party in the past. Note: A financial professional can’t provide any future services to either party after the divorce is final.
During Your Divorce
- Make financial decisions based on professional advice rather than emotions.
- Identify all separate and community property.
- Consider the immediate and potential long-term income tax consequences related to child and spousal support and property division before you reach a final agreement.
- Know what your future housing costs will be.
- Identify any potential tax and penalties related to dividing retirement plans.
- Have a plan to payoff credit cards and other debt.
- Establish credit in your own name.
- Consider your needs, costs and options related to your health insurance.
- Consider the potential future transaction costs related to selling/transferring property, for example, real estate.
- Identify the appropriate current value for future pension benefits.
- Consider the cost of education and/or training to qualify for employment opportunities.
After Your Divorce
- Close joint credit cards, bank, investment and other financial accounts. You should seek legal advice regarding the timing of closing the accounts.
- Keep a record of support payments made and received.
- Prepare a post-divorce budget. Get professional help to set you on the right track if you need to. This is an investment in your future financial well-being.
- Review your credit report 30 days after the divorce is final.
- Adjust your wage withholding and/or estimated tax payments.
- Revise your will, trusts and estate plan.
Investing now in the right type of expert advice to guide you through a difficult time in your life will not only save you from expensive mistakes, it will pay dividends in wise money management and the freedom to make the kind of choices you want for your family as you build a new future.