Divorce can be an emotional roller coaster. In the heat of the moment, you may make very bad financial decisions that can come back to haunt you. Here are five common financial mistakes you should avoid.
1. Moving Out of the House Before Consulting an Attorney
It may feel like the magnanimous thing to do, but even if you have good intentions, volunteering to move out of the family home can result in a slew of terrible legal consequences. For one thing, once the divorce hits a judge’s desk, the court may order you to stay away from the house until the judge makes a final property decision in the divorce. That could take a long time.
Another factor to consider is that if you voluntarily move out of your home, the judge may take that to mean you’re the wealthier spouse and that you can afford to support two residences. Down the road, this may lead to the judge ordering you to pay alimony or refusing to give you alimony, even if you insist you’re the more financially needy spouse.
The exception to this is that if you are living with a violent or otherwise dangerous spouse, you should leave the house and move to a safe location immediately.
Whatever you decide to do, it's best to consult with an attorney first.
2. Admitting to Wrongful Behavior
Confiding to your spouse or your spouse’s attorney that you’ve been engaging in improprieties is one of the most disastrous mistakes you can make. Never admit to any of the following before you have consulted with your own attorney:
- physical or emotional abuse of your spouse, children, or both
- chemical dependency
- abandoning your spouse and family
- bigamy (marrying another person while you’re still married to your first spouse), or
- conviction of a crime.
These are just a few examples of things you should not admit to your spouse without talking to your own lawyer first. If you even suspect you’ve engaged in wrongful conduct that’s not on this list, don’t ‘fess up to it before talking to your lawyer.
Confession is good for the soul, but it can be ruinous in a courtroom. Some states punish wrongful marital conduct in the final divorce property settlement. These states have laws that say if you’ve engaged in any wrongful behavior, you aren’t entitled to alimony; or, on the other hand, you’ll have to pay more alimony to your spouse. Admissions of bad behavior can also have an effect on other financial aspects of your divorce. Never admit improprieties to your spouse without talking to a lawyer first! If your divorce is contentious, it's probably best to limit direct communication with your spouse.
3. Refusing to Comply with Discovery
If your spouse serves you or your attorney with discovery—meaning, a formal request to produce certain documents or appear for a deposition—you should cooperate as much as possible unless your attorney advises against it. If you fail to comply, your spouse can file a motion to compel you to do so.
If the court believes you’re trying to evade its rules or interfere with your spouse's ability to obtain relevant information, the judge will order you to produce the requested discovery and possibly even order you to pay fines to the other side, usually in a sum sufficient to cover what your spouse had to pay to bring the motion.
In the end, if the judge sees you behaving in an unreasonable and petty manner, you’re not just going to be financially punished, but you’ll likely earn the court's ire and disdain, which may have a long-term effect on how the judge views you and your case.
4. Ignoring the Tax Implications of Divorce
It’s important to remember that when you get divorced, certain parts of your taxes are going to change dramatically. For instance, if the judge awards you alimony, the IRS considers that money to be taxable income, whereas the party who has to pay the alimony is able to write it off as a deduction. Similarly, even if you agree to an equal division of property, one party may wind up paying a great deal of taxes for the 50% received, whereas the other party may pay only a little.
The bottom line is that it’s wise to consult with an accountant or certified divorce financial analyst in addition to your attorney. This person is more likely than your attorney to understand all the tax implications of a divorce division.
5. Negotiating with Your Feelings
It’s easy to tell people to put their hearts aside and use their heads when they’re confronted with tough decisions, but it’s tough to do when you’re the one who’s emotionally invested in the problem. Divorce is rife with hurt feelings, anger, betrayal, and sadness, yet you still have to be logical, set your feelings aside, and make rational choices.
If your spouse offers you a deal that your attorney thinks is fair, don’t reject it out of hand just because you’re upset and you want to punish your spouse. Negotiate in good faith, because your ultimate objective is to avoid trial. If you have to go to trial, the decisions are no longer yours, but belong entirely to the judge. If you can make decisions with your head and not your heart, you can keep control of the case and walk away with an agreement that may not be everything you want, but is fair and satisfying nonetheless.