Divorce - Avoid These Financial Mistakes



Donna Slater, CPA, CDFA
Principal

 It’s a sad fact that over 50% of marriages will end in divorce and though divorce is very prevalent, most people don’t understand the financial distress it can cause. With emotions running high, it is important to keep a level head and with proper planning, you can avoid some of the more common pitfalls.

Since income will likely drop after a divorce, it is important to develop a budget based on your current and projected income and expenses. Understand what your financial needs are and negotiate enough liquid assets to meet those needs.

Identify what assets you have and the value of each asset. Be sure to include everything. Some assets are easy to forget such as stock options, the cash value of life insurance policies and timeshare properties. Use this list as a starting point in negotiations.



Be aware of the value of all pensions. A pension is often more valuable than the marital home, since pensions produce income and home maintenance costs deplete income.

Since no two pension plans are identical, involving a pension expert early in the divorce process will minimize costly mistakes. A Qualified Domestic Relations Order (QDRO) is the legal document from the court that directs a pension plan administrator to give a certain amount of an employee’s pension to his or her ex-spouse after the divorce is final. It should be prepared pre-judgment and presented to the judge for signature concurrent with the final divorce decree. An order cannot be accepted after the death of a participant and any benefits that have been awarded to the alternate payee will not be paid by the plan.


If you would like to retain the marital home, first determine if you can afford it and then be sure to pre-qualify for a mortgage before the divorce is final. Have a home inspection prior to signing the divorce papers to determine if expensive repairs are necessary and be sure to subtract the closing costs and projected expenses needed to get the house ready to put on market from the value you assign to the house.

Keep in mind the after-tax values of all assets, since that will determine how much you will ultimately end up with. For example, you could end up paying capital gains taxes on the sale of your home or investment assets.

Cancel all joint credit cards in writing and open new ones in your name only. Remember that third party creditors can still hold you liable for joint debt regardless of what your divorce decree states.

Contact Donna by emailing donnas@pgco.com, or by calling 401-831-0200.