Five Financial Mistakes to Avoid During Divorce

While a divorce may leave a mental or emotional toll on both parties, it doesn’t have to hurt financially. Avoiding financial mistakes during divorce can go a long way in easing the pain. From holding on to the family home to ignoring your expenses, here’s a look at five financial mistakes that should be avoided at all costs during a breakup.

1. Ignoring Tax Implications: A Costly Oversight

Dismissal of tax considerations in divorce can lead to unexpected costs. From asset division to childcare, understanding the tax implications is crucial. Many aspects of divorce, including the sale of the marital home and childcare arrangements, have tax implications that may be overlooked.

Always consult with a financial advisor to get a comprehensive understanding of the potential tax impact of your divorce.

2. Long-Term Assessment of Settlements: Beyond Immediate Gains

When reviewing divorce settlements, look beyond immediate gains. Consider assets, income, living expenses, inflation, maintenance costs, child support, taxes, retirement plans, investments, and child-related expenses like education.

Leveraging specialised cash flow models can provide realistic analyses of your post-divorce lifestyle. It’s crucial to consult a financial advisor to grasp the long-term consequences of a proposed financial settlement thoroughly.

3. Staying in the Marital Home Strategically: Legal Considerations

There are four legal considerations:

• If you leave the marital home, you need to consider the affordability.
• If there is a mortgage on the property and you are a title holder, you still have a liability to meet the mortgage payments.
• If you leave, you need to consider the affordability of alternative housing costs.
• If safety is not an issue, staying in the marital home until a court decision is made about the property might sometimes be the wisest course of action.

4. Understanding Asset Values: Not All Are Equal

When dividing marital assets, it’s crucial to weigh their true value. Not all assets are created equal. For example, choosing between a £30,000 car and a £30,000 mutual fund requires considering the difference between the liquidity of the different assets.

Homes, in particular, are challenging to value due to market fluctuations and associated costs like taxes and maintenance. Focus on the long-term value of assets, not just their current worth, to secure your financial future.

5. Exploring Out-of-Court Settlements: Collaborative Approaches

Consider collaborative approaches to resolve divorce issues. Mediation or collaboration can save on legal fees and emotional strain. The collaborative process involves a team of specially trained professionals, including family lawyers, sometimes a family consultant, and can also include a financial advisor.

This team supports you through the process, promoting collaborative planning for the future. Collaborative divorce provides flexibility in decision-making compared to the traditional adversarial legal process, where a judge makes all decisions.

Make Smart Choices, Avoid Financial Mistakes During Divorce

Divorce need not be a financial battleground. Take proactive steps, consult with experts, and explore collaborative avenues for a smoother, financially secure transition. By understanding tax implications, assessing settlements for long-term impact, recognising the true value of assets, and exploring out-of-court settlements, you can navigate divorce more effectively and protect your financial well-being.

If you are considering an alternative to going to court or if you would like to explore your options, contact Judith Higson. She advises on complex separation and divorce cases, with particular expertise in advising on the financial aspects of matrimonial disputes.

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