Divorce can be an extremely costly process from an emotional as well as a financial standpoint. Couples who decide to end their marriage often let their emotions replace sound decision-making.
While no one thinks going through a divorce is easy, there are ways to make the process smoother without creating financial hardships that can affect you for years to come.
Common financial mistakes
If you and your spouse are going your separate ways, here are five costly errors that too many people make when getting divorced:
- Out-of-control spending: Also called “retail therapy,” many of those soon-to-be-divorced feel buying cars, homes or other expensive items will help them feel better. However, the financial repercussions soon replace those positive feelings.
- Cashing in investments: Selling assets, such as stocks and bonds, to pay off bills before a divorce is final may seem like a good idea. However, depleting those funds can put your long-term financial goals and security at risk.
- Alimony payments: Under the Trump tax plan, spouses paying alimony no longer receive tax deductions. Since the paying spouse is usually in a higher tax bracket than the recipient, there is less money available than before the law went into effect.
- 401(k) distributions: Just as cashing in investments can hurt your future financial well-being, liquidating 401(k)s and other retirement funds can bring an additional 10% penalty from the IRS if you are under age 59 ½.
- Fighting over the house: While many couples wage an intense battle over who will keep the family home, many times, one or both spouses may not be able to afford mortgage payments as well as other costs associated with a house, such as taxes and insurance.
Develop a financial plan before your divorce is final
Divorce can cause irrational and impulsive behavior for many people, who are anxious to start over with a clean slate but lack fiscal restraint. An experienced family law attorney here in New Hampshire can help formulate a plan while protecting your interests so you receive your fair share of marital property.