Financial Moves Not To Make During Your Divorce

Divorce can be an emotionally draining ordeal, sometimes leading to some bad decision making. Particularly when it comes to financial matters, these bad decisions can sometimes haunt you for several years post-divorce. Take steps now, before your divorce is final, to ensure that your financial future is protected and as worry-free as possible. Read on to learn more about the financial moves not to make during your divorce.

Not having a full understanding of your financial situation. It's simply not realistic to make major financial decisions without knowing how your dollars and cents stack up. You may already be using a budget, but you need to look further in the future and try to forecast your financial future for several years down the road. Once that is done, make a list of debts (credit cards, loans) compared to a list of assets (bank accounts, real estate). This is your current net worth.

Relying on emotions to make decisions about your family home. Don't just assume that being awarded the house is a plus; it may not be in your best interest when you consider the financial burden that comes with home ownership. Take a hard look at not only how the mortgage payments will impact you, but also homeowners' insurance, property taxes and the burdensome upkeep and maintenance costs associated with being awarded the house. It's entirely possible to end up with the family home, but little else.

Failing to evaluate assets properly. Present value, such as in the valuations done for the net worth statement, provide only a small part of the picture. Some assets are more valuable than what they first appear to be; take into account how the IRS treats taxes owed and how some assets could be used to generate more income. For example, a vacation property could continue to produce income far greater than its current appraised value.

Dismissing the QDRO option. Using a Qualified Domestic Relations Order can give you a powerful and efficient method of ensuring your financial future, but you will need to take steps for the order to be final during your divorce proceedings. A QDRO allows you to access funds in certain retirement accounts, such as a 401(k), without incurring the usual penalty for early withdrawal. You must "roll" the disbursement over within the specified period of time to avoid it being taxed as income, but this opportunity to begin or add to your retirement account is too valuable to pass up.

A consultation with a divorce attorney, like Susan M Caplin or others, and a financial adviser will provide you with more information about how to ensure a healthy financial future for you and your family.