Financial Mistakes to Avoid in a Divorce Settlement

Valentine’s Day has come and gone.  Nobody sets out to have a bad marriage, but things happen.  When a marriage is completely broken an array of emotions begin to surface.  It is vitally important to secure a representative who will clearly guide you on a path to rebuild your life.

The most common mistake divorcing spouses can make is not knowing or understanding their personal finances. If your spouse has always handled all of the financial decisions in your household and you don’t have any information about you and your spouse’s income and assets, your spouse will have an unfair advantage over you when it comes time to settle the financial issues in your divorce.  A divorce attorney can help you get as much information as you can.  They should guide you into making copies of important financial records and all other data that relates to your marital lifestyle.  In addition they can help protect you from keeping your spouse from liquidating assets without your consent.

The IRS doesn’t care what you are going through.  They will take their cut no matter what.  Work together with a divorce financial planner or tax accountant to minimize the total taxes you and your spouse will pay during separation and after divorce; you can share the money you save. Don't forget that both spouses are liable for taxes due as a result of audits on joint returns, so it’s usually in your best interest to work together and minimize possible liabilities. If you’re facing complicated tax issues in your divorce, it’s best to consult with an experienced family law attorney and an accountant.  Also remember that after the divorce is final, you may get taxed on the marital assets you received through your settlement.

Make sure you produce an accurate budget.  Divorcing spouses usually underestimate living expenses when they produce their initial budget for temporary alimony (also referred to as “maintenance”), and later find that they aren’t able to cover all of their bills. Use a financial professional to help you produce an accurate and complete budget.

There are specialized divorce computer models that produce comprehensive and realistic analyses of your post-divorce lifestyle.  If you’re trying to decide whether your spouse’s proposed divorce settlement is fair and workable, you should try to figure out how the settlement will impact your finances in the years ahead. There are many factors to consider, including assets, incomes, living expenses, inflation, alimony, child support, taxes, retirement plans, investments, medical expenses and health insurance costs, and child-related expenses such as education.

Let go of any emotional attachments you may have. During your divorce and settlement negotiations, your main focus should always be on how to maximize your finances by making sure you’ll have enough cash for living expenses after your divorce and in retirement.  However, both spouses and children must make compromises in their life styles post-divorce. A settlement that does not give one spouse enough money to live on is likely to go into default in the future. Be fair, but verify the numbers. Get payments up front whenever possible, even if you get less in total. Try to secure all payments with assets and insurance.

The effects of inflation on the cost of a child's college education, or on retirement, 15 years in the future can be dramatic. The “Rule of 72” is a simple way to judge the impact of inflation. For example, if the inflation rate is 3%, the “Rule of 72” means that prices will double in 24 years (72/3=24). College costs at 5% inflation will double in 14.4 years (72/5=14.4). Be sure to work inflation into your settlement negotiations so you can cover the true costs of future financial expenses.

These are just a few of the pitfalls for you to be aware of if you are going through a divorce.  Having an attorney with the resources and knowledge to give you the best representation is vital to your interest and the interest of your family.  You also want to make sure they will exhaust all avenues and be willing to research, pursue and implement strategies to provide the best possible outcome.

Rob McAngus, Partner with Verner Brumley Parker, P.C., is Board Certified in family Law and his practice is devoted primarily to family law, including high conflict divorce, custody cases, and complex property issues. In addition to being selected on the Board of Directors for the Family Law Section of the Dallas Bar Association; he values your priorities as a parent and works with you to achieve the goals that will help transition your family to a new normal.  As both an adopted child and a member of a blended family, Rob can provide a unique perspective in the practice of family law.

Rob has been recognized in Super Lawyers as a Rising Star in 2016 through 2019, and recently The National Advocates recognized Rob as one of the Top 40 Under 40.  He can be reached by calling 214.526.5234 or email at rmcangus@vernerbrumley.com.