As a family law attorney who has substantial experience working with high-conflict divorces, I've seen firsthand the challenges and pitfalls that people encounter when dissolving a marriage. Divorce is undoubtedly a difficult and traumatic experience, both financially and emotionally. It’s crucial to approach this process with a clear mind and realistic expectations. Here’s what I've learned about common mistakes and how you can avoid them.
One of the most frequent errors I witness is having unrealistic expectations and the mindset to “win.” Many people approach divorce as a battle, making decisions accordingly. While this approach might be lucrative for divorce professionals, it's rarely a good strategy for the divorcee. Instead, try to mitigate financial and emotional damage. Your attorney should be setting realistic expectations for your divorce process as well.
Another common mistake is making decisions without fully understanding them. A good attorney will educate you so you can make informed choices. If your lawyer makes decisions for you instead of explaining things, that is a red flag. You, the client, will live with the consequences of the decisions, not the attorney.
Many people believe that they can only settle their divorce in court. But this is also a mistake. Most people can reach an agreement without resorting to a judge. Litigation is expensive and can lead to "charring the walls," where you spend more money on the fight than on what you are fighting over. If you have children, this can make co-parenting difficult. Two good attorneys should be able to guide their clients to a fair settlement without going to court. If this isn't possible, a qualified mediator can help.
Here are some key takeaways on financial missteps:
- Be careful with 401(k) distributions
Withdrawing from retirement funds can lead to a tax bill and penalties if you are under 59 ½. A QDRO can help you roll over funds into an IRA, so you can defer taxes
- Don't fight for the house at all costs
A house comes with costs, such as the mortgage, maintenance, and taxes. Be sure you can actually afford the house before fighting for it
- Don't quit your job to avoid alimony
It can lead to more court time and attorney fees and you may end up paying just as much or more in alimony
- Have a financial plan
Don't make decisions without a financial plan. Consult a financial planner to guide you through complex financial issues
- Be realistic about the lifestyle you can afford
Few couples can maintain their current lifestyle after a divorce. You should make a budget and figure out what you truly need
- Not all assets are worth the same
Retirement accounts and after-tax brokerage accounts are taxed differently. Make sure to calculate the after-tax value of all assets
- Don't agree to refinance the house immediately
It can affect your creditworthiness and interest rates
- Make sure your QDRO is executed correctly
It grants you access to a portion of your spouse’s retirement benefits and should be implemented as soon as possible
- Update your estate planning documents
Post-divorce, it’s important to change beneficiaries and update estate plans
Finally, remember to choose your battles wisely. Every fight has a cost, and emotional reactions can be costly. It's important to breathe and make sound decisions. Ultimately, try to focus on problem-solving instead of fighting. If both you and your ex feel that you gave up a lot, it's likely a fair settlement. By being informed, realistic, and strategic, you can navigate the complexities of divorce and move forward towards a more stable future.