At the time of a divorce, you are confronted with several decisions that will sooner or later influence your financial situation. This post highlights how to prevent some of those standard financial mistakes divorcing couples make. It is important to get valid financial counsel from an expert, even though you may be capable of handling these concerns yourself.
Mistake #1 – Failing to Understand Your New Financial Situation
Formulate a monthly budget that gives a detailed picture of your income versus your expenses. Many people know what their salary is monthly, but they still cannot give an account of how that money was spent. When developing your budget, take into consideration inflation since you may not be able to keep up a quality lifestyle if you minimize your future costs by purposely disregarding inflation.
Mistake #2 – Keeping a House You Cannot Afford
Many people would conclude that the custodial parent should be the one who gets the family residence, primarily when children are included. This is not always a cost effective decision, especially if you have to let go of everything you own for the sake of holding on to your home. This is a sign that you are headed for a financial downfall.
Mistake #3 – Improperly Valuing Assets in the Negotiation
When negotiating your divorce, make sure that you are comparing like items and take notice of transaction costs, present value and tax basis of your assets. In the long run, an income-producing asset’s future benefit can outweigh its current market value. One spouse can end up with a greater advantage since an asset is not automatically represented or restricted by its market value.
Mistake #4 – Trying to Divide Each Individual Asset 50/50
An in depth view of your finances will help you settle your divorce in a civilized manner and help you to better understand how to divide your assets and liabilities. Deciding to address your financial issues one by one is not always favorable since you have a higher chance of missing something.
Mistake #5 – Failing to Obtain the Proper Insurance Coverage
Safeguard your child support and alimony payments with life insurance and a disability policy. Acquiring or changing existing insurance coverage guarantee that in the event of death or disability, payments will be made. If your spouse stops paying voluntarily, the policies would not help you. You will need to go to court to have the support enforce.
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