If you’re considering a divorce or are in the process of getting one, you must keep in mind that your divorce may be the single largest financial decision you will ever make. More often than not, divorce is emotionally challenging and chaotic. In addition, there are several complicated financial intricacies of divorce.
To help you make the right financial decisions during a divorce, we’ve compiled a list of the most common mistakes to avoid during the process.
50/50 division of property is a fair division. Believing that a 50/50 division of property is a fair division. Some assets have tax implications while others do not. Pensions and RRSPs need to be discounted by an average tax rate that would be realized in retirement. some investments will have a capital gain on sale, others will not. During your settlement process it is important to compare apples to apples. In addition, future earning potential for each spouse can be a big factor in equitably splitting your assets. It is important to discuss these issues with a Financial Divorce Specialist to ensure that your post divorce Net Worth is what you expected it would be.
Keeping the family home may not be the best decision. Failing to understand that it is not always a good financial decision to keep the family home. Keeping the family home is often an emotional decision, not a financial decision. If you cannot afford to keep the home you will eventually find yourself in a worse financial situation. Often one spouse will trade off retirement assets for the home leaving them unable to retire as planned. They have become house rich, income poor. Your Financial Divorce Specialist will project these two scenarios through your retirement years, illustrating to you what would be a sound financial decision for today as well as your future.
Deciding financial issues one at a time. Financial issues are like pieces of a puzzle that affect each other, falling into place when you understand the comprehensive picture. Factors such as income tax, capital gains tax, investment risk, inflation and transferability of assets all interact with each other. A fair settlement begins by looking at a comprehensive picture of your finances and then determining suitable courses of action.
Failing to consider alternative solutions. Have you considered various options to splitting the marital assets and debts? Each option has different outcomes you may or may not be comfortable with. Your Financial Divorce Specialist will show you several options in the division of property, from there you can choose the one that best meets your needs today and in your future.
Failing to ask “Will I be financially secure after my divorce?” before signing the divorce papers. By only looking at the immediacy of splitting assets and obtaining spousal and/or child support, without understanding how it looks 5, 10, or 20 years down the road you are doing yourself a great disservice. Planning for the future is key. By addressing all the financial mistakes discussed here, and analyzing the long-term financial impact of various settlements, you achieve excellent understanding of the shortfalls of certain proposed settlements and the fairness of others. Focus not only on your immediate and short-term needs, but also on your long-term financial security. Remember, once the papers are signed, the settlement is a done deal!
Not correctly evaluating the defined benefit pension plan. A defined benefit plan pays a monthly income at retirement and has a value today. What is that value? Often it is important to hire an independent and objective actuary to value that pension. This value can often be quite different than what is reflected on the pension statement.
To avoid these and other divorce related pitfalls, reach out to the experts at Empowered Divorce Solutions. Empowered Divorce Solutions works with individuals and couples to understand how the combination of income, property division and spousal & child support will affect you post-divorce. Through financial analysis and custom designed tools, we bring financial clarity and structure to a process often clouded by emotion, haste and misinformation.