How to Avoid Common Financial Mistakes Made By Divorcing Couples.
If you believe divorce is in the foreseeable future, it’s a smart move to start planning your finances and budget before divorce proceedings begin. Transitioning to a life after divorce will be much easier and with less of an upheaval when you are financially prepared.
In this blog I will discuss some mistakes to avoid and suggestions to help get you started and ensure a smoother journey on this difficult path.
From undervalued assets to lack of key pieces of information common financial mistakes made by divorcing couples.
1. Being Unprepared
Being unprepared puts your decision making at risk in all aspects of your divorce. Lack of financial paperwork on your part may mean relying on your ex’s side of the story. Missing court dates and deadlines put you at a distinct disadvantage.
A good divorce lawyer will let you know what documents they need from you: bank statements, records of debt, tax returns, etc.
2. Not Preparing A Case Information Statement (CIS)
The Case Information Statements are arguably the most important documents in an entire divorce so, though time consuming and tedious, it is important that divorcing parties fully understand what it requires.
In New Jersey, each litigant in a divorce must complete a Case Information Statement, (commonly referred to as a CIS) and file it with the court. Lack of a comprehensive CIS adversely affect the outcome of any future litigation. Inaccurate or incomplete baselines for income and lifestyle expenses put child support and alimony calculations at risk. For example, if your financial situation changes later, such as through a job loss, small overlooked details in your CIS CAN significantly harm your chances of getting any relief.
Mistakes and omissions in asset disclosures can also lead to unfair equitable distribution and accusations of hiding assets. Divorcing spouses on good terms may think they can skip the CIS… This is an extremely time-consuming and costly mistake if and when the CIS is needed at a later date.
3. Overlooked Assets
Inexperienced attorneys and those representing themselves often overlook non-materials assets.Items such as frequent flyer miles and reward points have value.
Non-material assets can be used as a bargaining chip, even if they aren't important to you. Purchasing a home prior to a marriage does not automatically exclude it from equitable distribution...For example, courts may credit “sweat equity” if the non-owning spouse performed repairs and upkeep of the property.
4. Underestimating Asset Value
The overlooked value of household contents can be very significant. One example is the value of household contents. Furniture, artworks, tools, piano, coin collections, memorabilia, all have value that should be calculated.
Also family businesses and business shares can be undervalued when proper valuation techniques are not carried out.
5. Not knowing Tax Consequences
Certain disbursement arrangements can add unexpected tax burdens. Retirement accounts are one example. If the tax liability isn’t accurately factored in your settlement, it can be worth a lot less than you thought it would be. Not factoring taxes in alimony negotiations can create chaos at tax time.
Child tax credits can alternate between co-parents. This credit does not automatically go to the custodial parent.
What To Do
With a looming divorce you will experience many emotions from sadness to worry to peace of mind. Having familiarity with your current finances, especially if your spouse handled the money will bring you confidence and security about your future. Keep your team and resources close at hand so you too can look forward to a single, joyous and independent life.
1. Meet with a Financial Advisor and Estate Planner
Make a plan to meet with a financial advisor to review bank accounts, life insurance policies, retirement funds and other important financial papers. If these accounts are in your name, your advisor will ensure the right beneficiaries are listed and the funds invested in are appropriate for your situation.
An Estate Planner can help you draw up a new Will, give you advice on obtaining new insurance quotes and advise on your tax situation. Deductibles and other taxation issues will arise, especially if children are involved.
2. Open your own financial accounts
If you don’t already have your own personal bank accounts or credit cards, open them now and start using them. It can be difficult to obtain credit after your divorce, especially if you are a stay-at-home mom or have put your career on hold. While still married, you can use your shared household income when applying for credit.
3. Review your credit report
Obtain your credit report and review it for anything that may have tarnished your credit history. If mistakes are present in the report, take steps to correct them now. Pay down any debts you have to improve your credit rating.
4. Use Online tools
Safeguarding your rights starts today!
I am solely focused on New Jersey divorce and family law, making me uniquely qualified to understand the challenges you are facing, as well as the intricate rules and protocols of family court. Contact me for a free consultation. I can help you understand your options, ensure that your rights are protected. vantassellaw | 201.664.8566