Divorce can be a costly process, both emotionally and financially. Often times, the emotion associated with ending a marriage leads to making money mistakes that you wouldn’t dream of making if you weren’t wrapped up in the emotional stress of a divorce. Below we discuss common money mistakes people make just before a divorce or while their divorce is pending.
Retail therapy is one of the more obvious money mistakes during divorce. Some people make big purchases, like a new car or an exotic vacation. Other people make a series of smaller purchases, such as a new wardrobe, or a series of online auction purchases. Particularly when the spending is frequent but seemingly small, people are surprised a month or two later at the size of their new financial obligation. Spending money may feel good in the moment, however, it is a good idea, during the time of transition from married couple to single person, to refrain from making unnecessary purchases. Give yourself some time to figure out how you will live with your new budget before spending money on new things.
Using Your 401 (k) as a Savings Account
Your 401(k) is set up for retirement. Many people don’t even look at the amount of money in their 401(k) or other retirement accounts, because it simply doesn’t matter how much is in there until you need it. When couples divorce, the amount of money in a 401 (k) is a topic at the forefront, and many people suddenly believe they have a significant sum of money. Particularly when adjusting to single life, it may be tempting to dip into the 401 (k) to meet certain expenses, pay off debts, or otherwise rely on those funds as if they were in a savings account. However, this is one of the biggest money mistakes during a divorce. There are tax consequences for removing money from a 401 (k). There are also penalties if you are under 59 ½ years of age when you withdraw the funds.
Quitting Your Job to Avoid Child Support
If you think you are the first person to consider quitting a job so you don’t have to pay child support or alimony, you are sadly lacking in imagination. People have attempted this since the dawn of divorce. The courts, however, are on to this practice. Most people, after taking a few moments, realize the foolishness of such an approach. Often such a plan is merely said in anger, and not followed through on. Sometimes, however, a parent actually does quit their job to avoid child support.
If you choose intentional unemployment or underemployment, the court can assess child support based on your potential earnings. Additionally, quitting your job to avoid supporting your children will undoubtedly lead to more money spent on lawyers and more time in court. It doesn’t cast you in a very good light when determining the custodial parent, either. The court looks at the best interests of the child when making custody decisions. A parent who willfully attempts to avoid financial responsibility for the children is probably not a parent who puts their children first.
Finally, most people cannot afford to live without working forever. Eventually, you will get a job again. This can be considered a change in circumstances that merits returning to court for a child support obligation adjustment. Many before you have tried and failed. This is one of the most serious money mistakes during divorce, and should not be attempted.
Hiding assets is not only a money mistake during divorce, it is illegal. When couples divorce, they are expected to be honest in identifying and dividing assets and debts. Hiding assets perpetrates a fraud upon the court. You are opening yourself up to both criminal and civil penalties for such conduct. In other words, you may pay a fine or find yourself in jail serving time for hiding assets. Hiding assets is quite possibly one of the worst things you can do during a divorce.
Failing to Plan for Your Financial Future
Failing to plan for your financial future is one of the biggest money mistakes during divorce. Sure it is exhausting thinking about 401 (k)s, retirement in general, the cost of daycare, home maintenance, parenting schedules, what to do with the household goods, what must be replaced, where you will live, how the kids will get to school, et cetera, et cetera. However, failing to plan is tantamount to planning to fail.
Creating a financial plan during your divorce provides a clear road map as to what choices may or may not be in your long-term best interests. For example, maybe you love, love, love your house. Getting the house in the divorce, only to discover you can’t afford the Home Owner’s Association dues and feed your family is a disaster, not a dream. Planning your financial future requires crunching the numbers and facing harsh realities. However, it is worth the investment in your financial future.
Failing to Hire an Attorney
Legally, you are entitled to represent yourself in your divorce. You could also pull your own wisdom teeth and replace your own roof. However, it is a good idea to divorce with the assistance of an experienced divorce attorney. Divorce law isn’t something you can learn in a weekend.
Divorcing? Call Us
If you are contemplating divorce, contact Fait & DiLima. Our attorneys focus on family law and divorce cases. With over 50 years of combined experience representing individuals divorcing, we have seen the consequences of money mistakes such as the ones discussed above. Let us help you transition from married couple to single person by creating a divorce plan that is suitable for you and your family. You don’t have to make the same money mistakes during divorce that countless others have made. Call today at 301-251-0100.