Portrait of John K Grubb

Texas Divorce and Prenuptial Agreement

4550 Post Oak Place, Suite 201 • Houston, Texas 77027-3139

Phone: 713-877-8800 • Fax: 713-877-1229

Top 10 Divorce Financial Missteps You Don’t Want to Make

Top 10 Divorce Financial Missteps You Don’t Want to Make

Financial missteps can be easy to make if you’re involved in divorce psychological warfare. Your mind is on other things, namely your children if you have them, gainful employment if you’re currently not working, and where you will live. With all the distractions, it is important not to make financial mistakes that can ruin your security.

You have probably already made copies of important financial documents such as bank and stockbroker statements and your joint income tax returns. Although you need such information for your divorce proceedings, there are also other considerations that could affect your financial health.

  1. Accepting a divorce settlement that looks too good to be true is a major financial misstep. Most likely you should probably continue negotiations. Check and verify the numbers, because if your spouse does not receive enough at settlement is likely to default on other obligations for which you may be held responsible. If you can, get any payments at the beginning, even though you might receive less money in total.
  2. Becoming too emotionally attached to assets such as your marital home can hurt your financial wellbeing. To avoid this financial misstep, look at your home like you view other investments such as stocks and bonds and calculate the return on investment (ROI). For example, if the home’s appreciation rate is only 2-3% annually but is one of your major expenses, it might not be a good idea to hang on to the house. The expense of upkeep – mortgage, taxes, repairs, utilities, and the like – usually exceed the 2-3% appreciation.
  3. Failing to recognize your true adversary is the IRS, not your spouse. Most Houstonians will owe taxes after divorce on the share of community property they receive and both you and your spouse are liable for any taxes owed on joint returns in an IRS audit. Avoiding this financial misstep is simple if you have a good financial planner or tax accountant to advise you on minimizing tax obligations.
  4. Disregarding the tax impact of your divorce settlement may have serious financial consequences. Splitting your spouse’s investments down the middle might sound like a good idea, but you need to look at the values of your assets relative to your spouse’s assets on an after tax basis. The IRS always makes sure to take a share. Does it still look like a good idea?
  5. Failing to make an accurate budget may leave your short on money to pay monthly expenses. Don’t underestimate your expenses if you will receive temporary maintenance. Keep in mind that Houston’s family courts may use the budget you make now as a basis for your divorce settlement.
  6. Ignoring inflation is a serious financial misstep. Inflation affects more than food and gasoline. What about the cost of your children’s college education? If the inflation rate is 3%, prices will double in 24 years; if it’s 5%, prices double in a little under 14.5 years.
  7. Many people forget to change the beneficiaries on important documents such as insurance policies, wills, and IRAs. If you don’t do this, your ex-spouse may end up inheriting your estate rather than your children, your favorite charity, or your new spouse if you remarry.
  8. Have you thought what would happen if your spouse dies or becomes disabled? In all probability, it would mean reduced payments at best and complete payment loss at worst for items such as child support or college tuition payments. Avoid this financial misstep by acquiring the appropriate divorce settlement insurance.
  9. The national average is about 9 and one half years of marriage prior to divorce. Did you waiting 6 additional months would make you eligible for half of your spouse’s social security at retirement?
  10. Failing to develop a financial plan will cause financial harm. You are cutting two incomes down to one. Making a financial plan helps you develop realistic resource allocations money in, money out) and set financial goals.

Avoiding financial missteps during your divorce will help you when you restart your life. Your Houston divorce attorney can usually recommend a good financial planner that can help you explore your financial options and to make decisions that are right for you.

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