24 Oct Avoid these Common Divorce Financial Mistakes
Apart from the emotional turmoil, the financial aspect of divorce is often the most stressful. During a marriage, a couple’s finances typically become so intertwined, sorting it out fairly can get complicated. Additionally, spouses often become dependent on the other’s income to support the life they built together. As you begin the process of separating and distributing your marital assets, keeping the following tips in mind will help you make smarter decisions and avoid divorce financial mistakes.
Letting Your Emotions Do the Negotiating
Divorce is an emotional process, but it is also a business deal. Allowing your hurting heart and bruised ego to dominate the discussion during mediation is not only counterproductive, it is also very expensive. Those who want to argue with a spiteful ex over every household item may end up spending more in attorney’s fees than the property is worth. When deciding how to choose your battles, try to avoid a showdown over sentimental property by approaching negotiations pragmatically.
Trying to Maintain Your Previous Lifestyle
Although the division of property and spousal support is intended to help couples maintain their financial status quo, two households are always more expensive to maintain than one. Also burdened by legal fees, many families experience a significant drop in their standard of living during and immediately after divorce. On average, men experience a 10% decrease in their standard of living, while women report a decrease of about 25%.
Often, at least one spouse wishes to remain in the marital home, especially to provide continuity and stability for their children. While it can be emotionally satisfying to “win” the house in a divorce, keeping the family home is not always a sound financial decision. Before deciding to keep the house, be sure you can afford to take over the mortgage, property taxes, insurance, upkeep, and repairs. Having access to liquid assets is especially important during a divorce. Selling the home and splitting the equity may be the ideal option for both spouses.
Forgetting About the Tax Implications of Your Divorce Settlement
A recent divorce can wreak havoc come tax season, but careful planning will help you understand what to expect. You and your ex must decide whether to file jointly or separately and who gets to claim the children as dependents. When negotiating a divorce settlement, keep in mind that no two assets with the same economic value are necessarily equal. Selling or transferring certain assets that have appreciated in value may result in substantial capital gains taxes for one or both spouses. Retirement accounts are another type of asset that may cause tricky tax implications. Another divorce-related tax issue involves spousal support. Alimony is counted as income for the receiving spouse, and it is deductible for the paying spouse. In order to avoid divorce financial mistakes related to taxes, it may be a good idea to consult a tax professional.
Call a South Carolina Divorce Attorney
If you are anticipating a divorce, reach out to an experienced divorce attorney as soon as possible. To learn more about avoiding divorce financial mistakes or for more information about the divorce process in South Carolina, contact the Mt. Pleasant attorneys at Klok Law Firm LLC.