No doubt, separation and divorce can be a stressful time for everyone involved. However, no matter how overwhelmed you feel during the process, it is important to keep a clear head, especially when it comes to finances. Unfortunately, many individuals experiencing divorce lose focus, making significant and often avoidable financial mistakes.
For the divorce process to proceed as smoothly and as fairly as possible, it is important to prepare yourself for each step before you begin. If you are about to begin the divorce process, familiarize yourself with some of the most common financial mistakes divorcing couples make. This way, you can avoid them, sidestepping some of the most frequent pitfalls experienced by individuals going through divorce.
Consider this list of some of those most common financial mistakes during divorce.
Failing to Consider Mediation
A variety of issues can arise during divorce, all of which will need to be settled before the divorce decree becomes final. Financial issues such as child support and child custody, alimony, and property division will always be complicated, but it is not always necessary to come to an agreement in court. When you settle these situations in court, you subject yourself to additional court and legal fees, as well as the emotional grief that can arise during a divorce case in court. While mediation does not work for all divorcing couples, it is a significant mistake to ignore the possibility. If you and your ex-partner are able to work together effectively enough to come to a fair agreement, mediation can usually save you time and money.
For this reason, mediation can be a valuable option whenever it is feasible. To begin the mediation process, you will need to hire a third-party mediator. More often than not, this mediator will be a family law attorney with extensive experience and training in mediation. You, your ex-partner, and your respective attorneys will then meet with the mediator, and they will help you reach a fair agreement on any issues involved in your divorce.
During the mediation process, it is not the mediator’s job to act as a judge. In fact, if you choose mediation, the mediator should not sway you towards any particular agreement or outcome. Working with a mediator allows divorcing couples a great deal of flexibility without the harsher legal restraints of court. Compared to the traditional adversarial legal process, individuals involved can make a decision that they personally believe is best for their family without being influenced in any particular direction.
Choosing to Hide Assets
One of the most strenuous aspects of the divorce process is the division of assets. Some states are considered community property states, meaning that assets are divided exactly equally during divorce. Missouri is not a community property state, but instead is an equitable division state. This means that property is divided by the courts fairly and equitably, but not necessarily equally.
Unfortunately, some spouses still try to conceal their assets during this stage, in an attempt to prevent them from being considered for division. This action is not only highly unethical, but illegal—hiding assets can lead to significant penalties. In Missouri, you may be required to compensate your ex-partner for 100% the value of the hidden asset. In the end, you not only risk financial repercussions but also lose the trust of the court.
Ignoring Taxes and Their Impact During Divorce Settlement
If you fail to consider the impact of taxes on your divorce settlement, you may be agreeing to a deal that is much less fair than it seems. Once your divorce is final, you could be taxed on many marital assets you received through the settlement. For example, imagine your spouse handles the marital investment accounts and offers to divide them with you 60/40 since they engaged in most of the investments. On the surface, this seems like an equitable deal. However, you must first determine the value of your particular investments on an after tax basis. Only then can you determine whether or not you are receiving a truly fair deal.
Similarly, IRAs initiate tax implications when a spouse makes an early withdrawal for asset division .For 401ks and other retirement accounts, you will likely need to follow strict procedures to avoid tax consequences. When you are transferring physical property like cars and homes or dividing checking and savings accounts, the IRS has instituted tax protections. Otherwise, it is a good idea to speak to an experienced tax professional and a skilled family law attorney about the tax impact of property division.
Spending to Punish Your Spouse
All too many divorcing individuals take the opportunity to spend as much money as possible before the division of assets occurs. Some even elect to accumulate credit card debt in the hopes that it, too will be divided in the divorce. Financially punishing your spouse is never a positive route to take, and will not work to your benefit, in the end — even if it feels satisfying at the moment. The practice of excessively spending to benefit one spouse to the detriment of the other is called dissipation of assets.
While your spouse must prove that your spending was both excessive and increased after your relationship came to an end, engaging in this behavior will not win you any favors in court. In fact, dissipation of assets will have a negative impact on your case’s outcome. The court generally does not consider how upset you are with your ex-partner and is not interested in financially punishing your spouse, even if you believe they deserve it. It is in your best interest to take emotion out of your divorce case to the best of your ability and preserve your finances so that they do not deviate from your pre-divorce levels. The best revenge is living a happy, fulfilled life after divorce.
Consult With a Skilled Divorce Attorney in Kansas City, Missouri
If you are looking to avoid grave financial errors during a divorce, your best asset is the advice of an experienced Kansas City, MO divorce lawyer. At Stange Law Firm, our expert family law attorneys can guide you to an equitable divorce settlement that meets your needs and preserves your assets. To schedule a consultation with a skilled divorce attorney in Kansas City, MO, contact us online today.