12 Common Financial Mistakes in Divorce, contributed by Sharon Count. The Chicago Tribune recently held a program on finances and divorce. Unfortunately I missed it but I asked one of the panelists, Sharon Count, for the advice that she shared with those who had attended. So here it is. Let me know what you think!
12 Common Financial Mistakes in Divorce
By Sharon Count, Financial Advisor
The first thing a person should do when facing divorce is to form a strong team of advocates, including a financial advisor (of their own), and an accountant (of their own). Then, they should consult with their financial advisor, accountant and friends about a reputable divorce attorney that will be a good fit for the personalities involved in the marriage. Also, while forming the team, the individual should apply for credit (their own credit card).
Some of the common financial mistakes in divorce are:
1. Not understanding the difference between Unallocated Maintenance and Child Support (treated as all maintenance) and Allocated (segregated) Maintenance and Child Support. If unallocated maintenance and child support will be received, then the Marital Settlement Agreement (divorce decree) should clearly define what portion is child support and also clearly define the reduction amounts as children emancipate.
2. Believing that permanent maintenance is permanent. It is always modifiable. It is important to have a plan to replace it if necessary, through life insurance, disability insurance, annuity, or personal income.
3. Thinking that you have flexibility in paying for attorney’s fees. This is not the case with all attorneys. It is important to plan for how you will pay your attorneys when you have already reached your credit limit.
4. Thinking that you will be able to get a mortgage or to refinance during the divorce process. With the economic downturn and housing crisis, it has become increasingly more difficult for the non-wage-earning spouse to be able to apply for a mortgage – now what?
5. Not understanding how pay periods– 26 times a year (biweekly) versus 24 times a year (bimonthly) – make a difference when calculating support.
6. Not understanding how money can be hidden when one spouse owns a business. Work with a forensic accountant and business valuation expert.
7. Not understanding the tax implications to you and your ex-spouse when you have received stock options as part of the settlement, and they are not in your name.
8. Not foreseeing unexpected children expenses – cell phones (technology), orthodontia, high school books and fees, car and umbrella insurance for teen drivers! Define who pays!
9. Not understanding the differences between IRA, Roth IRA, and Stock Options and how they all differ in restrictions and taxation. Make sure you consult with your own accountant during the settlement process. They are not all treated the same!
10. Putting all of the settlement cash into one place, i.e. purchasing a house for cash and watching the housing market drop. Diversify!
11. Not knowing your social security benefits as a divorcee – and knowing when you can take them. Apply for them in a timely fashion as unclaimed earlier benefits are lost forever.
12. Thinking that the divorce expenses are done after the divorce. There will be more fees for attorneys in preparing the appropriate documentation for distribution of retirement plans, title transfers, tax preparation for the final joint return, mediation fees, and long-term divorce counseling for the parents or the children. There may also be post-divorce litigation. Define who pays!
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