When you ask people what are the largest financial transactions they will make in their lives, the most common answers are a home, college tuition or saving for retirement. For about half the population, these answers are correct. But for the other half, couples who are contemplating divorce, the largest financial transaction, without question, is their divorce. If you happen to be one of these people, be aware that there are many financial pitfalls in divorce that if you avoid, can result in both you and your soon to be ex getting a better financial settlement.
Don’t let your emotions rule your divorce
As a professional financial planner and money manager, the one thing I tell people over and over is to avoid making emotional decisions as it relates to money because the results are often less than optimal. Going through a divorce is one of the biggest emotional roller coasters you can experience, but in order to make rational decisions throughout, you have to control your emotions. It is easier said than done, but if you can put your emotions in check, you will find yourself in better financial shape in the long run.
One emotion you must try to avoid is anger because it can make things worse than they truly are. Anger gets in the way of making rational decisions and coming to an agreement. If you can remove the anger as an obstacle, you can come to a reasonable conclusion.
Try to use a mediator if possible
You should try to use a mediation process and avoid going to trial where possible because there is more risk at trial than through mediation. A trial is expensive and some of the money that could benefit you and your children will be used to pay your lawyer. In addition, a trial leaves the decisions up to the judge rather than through mediation where the divorcing parties still have 100% control over how things will be settled. Sometimes hiring an attorney and going through the trial process is unavoidable. But if you can take advantage of the mediation process, it can save you a lot of money and often times lead to better post-divorce relations with the former spouse. This is the best situation possible especially when minor children are involved.
Finding the best professional advice and support
When going through a divorce, you should not cut corners on the professionals you hire. Since a divorce will most likely be the largest financial transaction in your life, worrying about saving a few dollars might cost you dearly in both the short and long term. Remember, you normally get what you pay for.
Get quality referrals to a divorce attorney/mediator and a good financial planner skilled in divorce. A good attorney who may also be a mediator can guide you through the process, resulting in the best outcome for you, your children and your future.
A financial planner can assist you and your attorney or mediator in the process by helping you understand the tax implications that are involved in asset splitting and insurance deficiencies that may exist. They can also help establish reasonable expectations about retirement, the rules related to how Social Security works for divorced couples, the impact of the divorce on children’s education and many other situations that have financial implications that you may not be aware of.
Don’t let these and other financial pitfalls get in the way of the best outcome for your future. Take as much time as necessary to plan and execute your divorce. This is an opportunity for a new beginning that puts you in control of your life.