Many individuals become so focused on short-term goals and finalizing their divorce, that they may make financial decisions that negatively impact them in the long-term. Below are some financial missteps to avoid during the divorce process:
- Keeping a Home You Cannot Afford
Many individuals desire to keep the marital home as part of the final property division, especially when children are involved. This is often seen as one constant amid a sea of changes. While this can be very appealing, it may not make financial sense. It is important to keep in mind that you will likely be shifting from two (2) incomes, to one (1) income. You also may need to refinance the home in order to reimburse your spouse for his/her share of the marital equity.
- Ignoring Tax Implications
Not all assets are taxed the same way. It is important to be aware of the various pre-tax and post-tax assets you are being awarded, and factoring this consideration into any equalizer payments. For example, withdrawing cash from your checking account does not result in any tax liability. In contrast, withdrawing funds from your 401(k) plan does result in a tax. It is important to keep this in mind for planning purposes, as well as a negotiation point.
- Not Guaranteeing Support with Life Insurance
If your spouse is obligated to pay spousal maintenance or child support, it is important to discuss him/her maintaining a life insurance policy to guarantee this support with you as the beneficiary. Depending on how heavily you rely on this source of income, a life insurance guarantee may be more or less important. However, this would provide financial protection for you in the event of your spouse’s death.
While these are only a few financial considerations that could impact you long-term, they are often overlooked when people become too focused on short-term goals.
If you have any questions, please call me today at 952-800-2025 or reach out via our online contact form to set up your free consultation.
