Marriage breakups are rarely easy and once the decisions surrounding child custody and access has been agreed upon, focus turns to the financial issues of asset splitting, debt ownership and family maintenance. In such a highly charged environment, emotions tend to run high which is why having a Financial Planner involved before final agreement, can prove invaluable, either as a neutral party to the breakup process, or as an adviser to one side.
Don’t underestimate household expenses. Leaving aside divorce proceedings which are stressful in their own right, most people usually misjudge what they spend. They either underestimate the true level of what they spend on items that they know about or they overlook annual or less frequent items. All divorce cases require both parties to submit detailed lists of expenses. If you are the one who is now only dealing with some expenses for the first time following an interim breakup you might need to double check what you are likely to spend in the immediate future.
Not securing spousal/child support with insurance or other means. Divorcing spouses often assume that once a judgment or agreement has been made for spousal or child support, that such payments are guaranteed for at least the minimum term, if not for life. In some situations these payments may either be reduced or cease entirely. If you are the recipient of such payments it is vital to ensure that you have arranged life assurance, disability insurance or specified illness on your ex-spouse prior to the divorce being finalised.
Disregarding tax consequences. An often overlooked matter is that of taxation on spousal maintenance which is generally subject to income taxes – generally child support payments are not considered income. Don’t get caught at tax time with a big tax bill when you find out you owe taxes. Likewise it is important that any asset transfers between spouses occur before the divorce is finalised otherwise they will be subject to capital acquisitions tax in the hands of the recipient.
Emotional attachment to assets. While the parent with the main residential responsibility for the children may wish to stay in the original family home, sometimes financial circumstances might work against it. With the possibility of either two family mortgages or a new rental agreement for the non remaining spouse there may be limited resources available to cover all the expenses of mortgage/rent, taxes, insurance, repairs, and maintenance.
Not securing affordable health insurance prior to divorce. With the ever-increasing cost of medical care, it is vital that this type of cover is not overlooked. While health insurers are used to providing continuity cover on separating or divorcing couples it is imperative that both parties fully understand the level of cover which they had prior to the breakup as well as any possible changes that might now be needed as part of a potential cost cutting process. Unless you work with the health insurer from the start of the breakup, it is possible that you might find yourself off cover. In the worst case scenario, future cover might not be possible. As such, it is important to research coverage prior to finalising a divorce.
Don’t forget pensions from previous employments. While a lot of attention may focus on current pension values that have grown under, usually, self owned businesses a blind spot quite often occurs with regard to previous employments where even the other spouse may have genuinely overlooked their existence.
Get advice from an experienced financial planner. There are subtleties in all financial products and it is best to get advice from someone who has experience in a broad range of both the type of products and the product providers. That way, it is less likely that something important might be overlooked in finalising the divorce settlement, especially if it might affect future values, after tax payments and personal protection.
I would stress that all of these items do not form an exhaustive list of financial mistakes in divorce but they do represent the more frequent issues we come across.
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