Divorce is stressful, not just on the emotions but on the pocketbook. Legal service Nolo found divorce costs among those surveyed averaged $15,500 in 2015. And that doesn’t include settlement terms. Here are five mistakes that can have significant financial consequences.
Oversharing on social media
New York attorney Jacqueline Newman said trashing a soon-to-be ex or boasting about your great new life can complicate divorce negotiations. One client’s husband, for example, insisted he couldn’t afford a proposed settlement. Then, he inadvertently gave Newman leverage to get a better deal. “He bragged [on social media] about the great vacation he just took and the big deal he just closed,” Newman said.
Not getting all the paperwork
While you can, gather Social Security statements showing your spouse’s earnings record and expected future benefits; amounts paid for major assets, including your house; receipts documenting home improvements. These documents may help not only with the divorce settlement but with future retirement and tax planning.
Ignoring tax consequences
Investments, property, retirement accounts and other assets may have the same face value now, but trigger different tax treatments later. A Roth IRA is worth more than a traditional IRA with the same balance, for example, because Roth withdrawals won’t be taxed in retirement. Likewise, an investment that’s grown a lot in value could trigger a big tax bill that reduces its ultimate value.
Leaving joint credit accounts open
Even if one spouse agrees to take responsibility for a debt, the other spouse can still be held liable if his or her name is on the account. Creditors aren’t bound by divorce agreements. Ideally, divorcing couples would close joint accounts, remove authorized users from credit cards and transfer the debt to new accounts or loans in the responsible spouse’s name only.
Assuming a court fight is inevitable
Mediation or collaborative divorce can save people money compared with traditional proceedings, Newman said. Mediation may not involve lawyers and relies on a neutral third party to help devise an agreement. With a collaborative divorce, each spouse is represented by an attorney trained in the collaborative process of negotiating deals that are fair to both parties.