One of the most common mistakes is to not thoroughly work out what you need to live on, before the divorce settlement is made. You need to do an accurate accounting before hand of what you expect your living expenses to be, especially if there are children involved. You may not be totally accurate, but you do need to have as good an approximation as possible, so that during the settlement process, the division of property and marital assets is as fair as possible to you both.
Often, spouses do not consider the effect of the divorce settlement on all the different taxes, and this can be a costly mistake to make. For example, if a property is being divided for the settlement, what happens about the capital gains tax? Obviously you need to see a professional to help you understand all the pros and cons to divorce settlements, to make sure that you come out on the right side of any settlements made.
The same applies to retirement accounts. Not all accounts are the same, and some accounts penalize for the early withdrawal of funds. If you are given these funds as part of the settlement, and then withdraw some funds, you could end up with a lot less than you expected. Also, some retirement funds are set up so that you pay tax on the funds when they are withdrawn, but for other accounts, they have already had the tax paid on the funds. You need to know exactly what you are dealing with, and the chances are that you will need someone qualified in accounting to explain the pros and cons of any deal offered. If you don’t, you again could end up with a far smaller settlement in reality than you saw on paper.
Another thing to consider is your credit rating. Are all your accounts joint accounts? Do you have any accounts in your name? This is often overlooked, but as soon as you realize you will be filing for divorce, if not before, you should try to build up your own credit score. So, open up new accounts that are in your name only. Apply for a credit card in your name, and then only use up to half of the credit limit on that card, but pay it off in full each month, or as much of it as you possibly can. Get a copy of your credit report – you are entitled to one free each year. Study it carefully and make sure there are no mistakes on it. If there are, follow the instructions for getting them corrected as soon as possible.
Close all joint accounts before the divorce settlement – you don’t want to be held responsible for your ex-spouse’s debt after the divorce.
The next thing you want to check into is your insurance policies. Make sure that the beneficiaries are who you want them to be, so look at them carefully, or phone up to confirm that all is as it should be. It is too late after the divorce settlement. Make sure you know that the payments are being made – better still make them yourself, then you know for sure that they are made. If you were to let your spouse make them on your behalf, how would you know if he or she stops making them?
These are just a few of the things to consider before your divorce settlement, and they obviously need to be seen by a professional to help you decide whether it is good for your settlement or not. Yes, it may cost for you to get a professional’s opinion, but it could save your future from severe headaches and the financial disaster that many divorcees find themselves in a few years on down the road. So heed this advice, and before your divorce settlement, get professional advice.
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