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Common Financial Mistakes in a Divorce

Some common financial mistakes related to divorce include but are not limited to:

  • Negotiating to retain the marital home when the party cannot afford it.
  • Not obtaining complete information on all retirement plans, employee benefits, and stock options.
  • Not evaluating the defined benefit pension plan correctly.
  • Thinking that retirement assets have the same value as an equal dollar amount of non-retirement assets.
  • Not understanding the different division methods of a retirement asset and not knowing which on is in your best interest.
  • Not understanding the purpose of a QDRO or the need to get it completed and filed at the time of the divorce or immediately after the divorce is final.
  • Not looking at the long-term impact of a financial settlement.
  • Failure to factor in inflation and investment returns when looking at the long-term impact of a settlement, or using unrealistic numbers in the evaluation.
  • Not being aware that it is possible to take a distribution from a retirement plan prior to age 59 1/2 and avoid the 10% penalty.
  • Not protecting the survivor benefits for the non-employee spouse.
  • Not protecting spousal and child support payments through life insurance.
  • Not understanding the importance of making the spouse who receives the spousal and child support payments the owner of a life insurance contract.
  • Improperly structuring spousal or child support payments.
  • Using a QDRO to divide an IRA.
  • Making isolated financial decisions versus looking at the big picture and analyzing how each financial decision impacts other decisions.
  • Not taking into account transaction costs when evaluating a settlement offer.
  • Failing to understand the tax implications of alimony payments versus child support payments.
  • Believing that a 50/50 division of property is an equitable division of property.
  • Not understanding methods or tax implications of dividing stock options.
  • Failing to consider the cost basis of property.
  • Not understanding the capital gains taxes upon the sale of the marital home or how the sale can impact each party.
  • Not understanding how to divide debt.
  • Not taking into account the effect of deferred taxes when dividing the assets.