When you are getting a divorce, it is not only an emotionally stressful situation, but a financially stressful one as well. You are dividing households, assets, and debts, which may have been bearable together, but apart they can potentially destroy your financial stability. With the right planning, you can create a strategy and make the divorce transition much easier. Here are the top 3 financial errors to avoid during a divorce.
1. Filing for Bankruptcy Without a Plan
When you file for bankruptcy, everything having to do with your finances freezes. This includes your divorce. For some, filing for bankruptcy together makes complete sense. For those that decide to file without understanding the consequences, it can be a big mistake. The situation can be dire if you are in a hurry to complete your divorce. Always make sure to discuss your finances thoroughly with your divorce attorney prior to filing for bankruptcy.
2. Living the Married Lifestyle Without the Marriage
When you are going through a divorce, it can be easy to continue to live at the same standard of living as when you were married. However, now you have a separate household, legal bills, support payments, and perhaps less income. Without proper budgeting, this can set you up for failure. Sit down with a financial planner and go over your monthly expenses. Putting together a financial plan can help you determine what you need to cut in order to remain financially secure.
3. Retirement Rollover
When one spouse receives a portion of the other’s retirement, they have the option to either take the amount as a lump sum without penalty, or roll it over into a retirement account, like an IRA. If you have income to sustain you, it may be in your best interest to roll the money into an IRA, so it is not taxed as income. This can help you establish a nest egg for your future expenses in retirement, as well as saving you a considerable amount in taxes. However, there are circumstances in which it may make sense to take the lump sum. Discuss your options and QDRO needs with your divorce attorney.