Your relationship started out with feelings of love and desire. Now, as your divorcing it seems all you do is haggle over financial matters. Splitting assets becomes symbolic and can create feelings of resentment, even hatred, as the once loving relationship dissolves into an accounting of who gets what.
No matter how many times you remind yourself that “it’s just stuff” or “money doesn’t matter,” when you’re parting ways, parsing out your marital assets can often feel like a competition where “to the victor go the spoils.” But it doesn’t have to be that way.
Financial expert David Rae, a Certified Financial Planner and Accredited Investment Fiduciary, shares his advice in a recent column for forbes.com. Rae contends that by avoiding six common missteps, you can move forward into a more sound financial future with fewer regrets. “Divorce is never easy,” Rae says. “But these kinds of financial mistakes can make the process that much harder.”
Mistake 1. Replacing what you lost right away
Although it may be tempting to fill your new (empty) home with a new 70” ultra HD smart TV, shiny new stainless appliances and expensive furnishings, resist the urge to indulge in retail therapy. Post-divorce purchases may bring their own regrets once the dust settles and the credit card bill comes due. Make a budget (see Mistake 6) and take your time outfitting your new home. Don’t make any major purchases until you’re feeling emotionally stable.
Mistake 2. Cashing in long-term investments to pay for short-term debt
Likewise, resist the urge to sacrifice investments such as your IRA, 401k and other long-term holdings to pay off post-divorce debt or to feather that new nest. The long-term harm may outweigh the immediate benefit. “If you are selling highly appreciated assets, you may owe substantial taxes when you sell the various investments,” Rae says. “Additionally, since those assets will no longer be invested, they won’t be helping you stay on track for your various financial goals.” Always consult with a financial advisor or investment planner before liquidating investments.
Mistake 3. Not consulting a tax professional about your new single status
The first year you file taxes as a single person you may be in for a shock if you haven’t considered the implications your new status has on what you owe Uncle Sam. New tax laws taking effect on January 1, 2019 may also impact what you owe if you’re paying alimony. Don’t wait until April 14 to sit down with a tax professional to review your income and withholding. Planning ahead may allow you to make adjustments so you’re not hit with an unpleasant tax surprise on April 15.
Mistake 4. Fighting over the house at all costs
The marital home can become a particularly sensitive battleground. As a symbol of stability and familiarity, you may feel the pain of losing it is worse than losing your spouse. Rae says think twice before demanding your marital residence in the settlement. “While it may be a gorgeous estate and worth millions, it may also come with a huge mortgage and a high-cost to maintain,” he says. “At the same time there have been recently divorced people stuck with a house that’s worth less than what they owe. (Negative equity). Make sure you consider all of your options when deciding what to do with the marital home.”
Mistake 5. Quitting your job to avoid paying alimony
Sudden changes in earnings can be reason for a modification in payments of child support or alimony, however, deliberately sabotaging your career and earnings just to keep from honoring the terms of your divorce agreement is “like cutting off your nose to spite your face,” says Rae. “At some point in time you will most assuredly go back to work,” he says. “If not, you will most likely suffer more, financially, from not earning a paycheck than you would writing that horrid alimony check.” In general, any action taken strictly out of spite is probably not going to benefit you in the long run. However, if you are considering a career change, going back to school, etc. as part of your post-divorce life, talk to your attorney about what this could mean for you, financially.
Mistake 6. Not having a financial plan
Even if your divorce is amenable and equitable, any major life changes should trigger a meeting with your financial advisor. If you don’t have an advisor, it’s time to get one. Many work for a reasonable annual fee or on a commission basis. Some banks even offer free financial planning services. Sitting down with an unbiased financial professional can help you prioritize your spending and savings plans as you set short- and long-term goals. Financial advisors may also keep you on track when it comes to updating beneficiaries of insurance and investment accounts, and wills.
Of course, avoiding these six common financial missteps won’t entirely take the sting out of your divorce, but smart money management can help you get back on your feet sooner and keep you from having regrets down the road.