Divorce can be complex due to the wide range of things you need to consider. The financial aspects of the divorce can be particularly tricky, and it is easy to make some mistakes. While you may have an idea of some of the financial issues to consider, others may come as a surprise. In this article, we explain the top 5 financial mistakes you need to avoid before filing for divorce in Phoenix.
Mistake #1: Not Knowing Your Finances
Not knowing your financial picture can gravely affect your divorce process. Before filing for divorce, take time to gather all your financial documents and understand your standing. This includes documents such as bank statements, retirement account statements, tax returns, pension documents and investment account statements.You also need a clear understanding of your credit card and mortgage statements so you can make informed decisions and avoid surprises later on. This will also help you in meeting the requirements of disclosing your finances during the divorce process.
Mistake #2: Overlooking Tax Implications
People often overlook the tax consequences when filing for a divorce. Although it may not be among the first things to consider, tax implications can have a significant impact on your finances. For instance, spousal support payments are not tax-deductible for the payer and are not considered taxable income for the recipient for federal taxes. However, certain states, such as California, may treat portions of income differently. If you changed your status from Married Filing Jointly to Single or Head of Household, your tax bracket will also change. This makes it more important to estimate your after-tax income and know what to expect after the divorce.
Mistake #3: Ignoring Retirement Accounts
While retirement accounts are an essential part of a couple’s assets, they are often misunderstood during divorce proceedings. For instance, withdrawing funds from a 401(k) or IRA before age 59½ can incur significant penalties. Similarly, you need a Qualified Domestic Relations Order (QDRO) to divide certain retirement accounts without penalties. Ignoring such details can have a long-term impact on your finances by increasing the risk of losing a portion of your retirement savings.
Mistake #4: Underestimating Post-Divorce Living Expenses
Just like most things in your life, your financial situation will change after a divorce. Without a budget that reflects your new reality, things can easily get complicated. You need to consider all your expenses, including housing, insurance, utilities, and any spousal or child support payments. Once the divorce is finalized, you may no longer have the discount benefits of a shared home, shared mobile phone and internet plans, or auto and health insurance policies you had as a married couple. Make sure to also account for one-time costs like moving and buying new furniture to get a realistic picture of what to expect.
Mistake #5: Not Using Divorce Professionals
The divorce process is complicated, and trying to do everything on your own can be a costly mistake. In addition to a family law attorney, you may also need to invest in experts such as a family or child therapist, as well as a Certified Divorce Financial Analyst. These experts will provide you with advice and guidance to help you navigate the legal, financial, and emotional complexities of divorce. In the long run, not only will you save on costs, but you will also make better decisions for your future.
Avoid Financial Mistakes by Working with an Experienced Phoenix Family Law Firm
The divorce process can easily take a toll on you in many aspects of your life. However, working with an experienced and trusted family law firm ensures you understand the process and make better plans. At Schill Law Group, we are dedicated to putting our legal knowledge to work and helping you avoid unnecessary financial mistakes before filing for divorce. Get in touch with us today at (480) 680-7432 to schedule a free consultation or set up a meeting.
