Marital Dissolution

4 Financial Mistakes to Avoid During a Massachusetts Divorce

Divorce is an extremely emotional process. As a result, it can be challenging for many people in Springfield to think of logical issues, such as finances, during this time. Unfortunately, poor financial decisions during divorce can be impossible to reverse, and they may have lasting adverse effects. Consequently, spouses should beware of four of the most common financial mistakes people make when divorcing.

1. Failing to plan ahead

People who are getting divorced should not delay planning financially for life after the separation. Spouses who haven't completed this planning may have more trouble presenting their financial standing and needs accurately during the settlement process. As a result, they may not receive the most favorable possible award of marital property or alimony.

To make a post-divorce budget, spouses should consider their current assets, income and expenses, along with likely changes to all three. Spouses should keep in mind that living costs, such as rent, often increase greatly after divorce. As an example, USA Today states that spouses who retire after divorce can each expect to pay up to 50 percent more to fund the retirement. Spouses should also factor in financial gains or obligations that may come with the divorce, such as alimony payments.

2. Becoming house poor

During the process of marital property division, many spouses may be tempted to fight for ownership of the family home. As USA Today observes, many people feel emotionally attached to the house, invested in it or reluctant to subject their children to more changes. However, spouses should keep the following potential drawbacks in mind:

  • Continued ownership of the house will come with various costs, such as insurance and upkeep expenses
  • Maintaining a house independently may be too time-consuming or labor-intensive, especially for spouses who need to work more after the divorce is over
  • Keeping the house may cost a spouse other potentially valuable marital assets, such as retirement benefits

In light of these issues, it's critical that spouses at least fully assess the financial downsides of keeping the house before agreeing to this arrangement.

3. Forgetting taxes

When assessing the financial benefits of a proposed divorce settlement, spouses should always keep a few tax-related issues in mind. First, it's essential that spouses assess the adjusted worth of each asset- including real estate, retirement accounts and stocks - with tax liability factored in, according to The Wall Street Journal. Spouses should also consider the tax implications of any payments they might make or receive after the divorce, including alimony and child support.

4. Mishandling retirement assets

Certain retirement benefits cannot be divided with a divorce decree; instead, spouses must obtain a specialized order called a Qualified Domestic Relations Order. If this order is not crafted carefully, it may be rejected on various grounds. For example, Forbes states that if a QDRO provides for a non-employee spouse to receive a lump sum payment or a benefit that the plan does not offer, it will be rejected. It is therefore important for spouses to ensure that a QDRO is drafted and approved by the pension plan administrator well before the divorce is finalized.

Avoiding other stumbles

To reduce the risk of these financial mishaps and other ones during divorce, most spouses may benefit from considering working with an attorney. An attorney may be able to help a person weigh the merits of different potential settlements and seek one that protects the individual's financial interests.