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When you are facing a life-changing decision like divorce, what do you think
you will find more valuable? Having someone on your side who offers only
comfort but no practical solutions, or having someone who will give it to you
straight. I feel strongly that not enough professionals in the world of divorce
truly tell it like it is. They tell you what you want to hear which can lead to
some pretty costly, but completely avoidable, mistakes.

I tell it like it is. Your household income as a couple will now be supporting
two households, so yes, things will change and your financial life will not be
the same. However, if you understand the pitfalls and risks, you can
comfortably navigate your marital transition and come out on the other side
with a stronger financial future than before. Let me guide you through that
change with some simple points.

 

Property Settlement Agreements are negotiated and agreed to by all parties
before they are finalized (though sometimes the terms are ordered by a
Judge if the parties cannot reach agreement on their own). I frequently
meet with clients who have agreed to terms without understanding (or even
reading) what they are signing, and which will become a lasting, binding
contract with a permanent impact on their futures. They are then confused
and upset, but it is too late. Here are the top three mistakes I see so often,
but with a little knowledge, are entirely avoidable.

 

AT ALL!
We all know that Uncle Sam will dive into our pockets at every
opportunity. Absolutely do not agree to a settlement without knowing and
understanding the tax implications. What people often find is that the tax
burden on their half of the marital assets is significantly higher than their
spouse’s, making their “half” of the assets worth significantly less than they
thought. You need to consult with a tax or financial specialist like a CDFA to
fully understand the implications BEFORE you sign the agreement. More
pointedly, don’t expect your attorney to understand and/or explain the tax
benefits to you. Attorneys are not accountants or financial advisors and a
lot of attorneys don’t understand the full or long term tax ramifications of
these agreements.

 

#2 – Pensions may be split 50/50 but no one knows what that really
means.
Over and over and over I see divorce agreements that order pensions to

be split 50/50 or split pursuant to a particular legally-recognized formula,
but the parties are not counseled as to when or how that will actually happen.

What type of account is it? Do I just show the pension plan the
judgment of divorce and they will write me a check? When do you start
collecting? Is there an option to take a lump sum? Will there be a cost of
living increase each year? What if you or your spouse dies? Will it keep
paying? Will it double? Do I need a separate order for the pension and if so,
are there any costs associated with this? When I ask these questions, no one
has ANY IDEA what the answers are. How can you possibly agree to a
settlement without understanding something so crucial to your financial
future and your right to receive retirement benefits?

 

And … drum roll….The biggest avoidable and costly mistake I see is…

 

I understand that people are emotionally tied to the family home and
really want to stay in their house or in the house their children live or grew
up in. However, before you even consider this option, you must prepare and
analyze a realistic budget. To fully understand this and to factor in all of the
hidden costs and considerations, you should meet with a financial advisor
and a mortgage broker. A CDFA can help you create a realistic and workable
budget, enabling you to survive the marital transition process and come out
stronger and more independent with a home you can truly afford and love. I
have witnessed where one or two years down the road, the spouse who
“won the house” has run out of cash and realized that they can’t sell a
window to put food on the table. They can’t refinance because now they
don’t have enough income, and they have no choice but to sell. So now they
will have to eat the selling costs which are about 8% of the sale – all of
which would have been split 50/50 with the ex if they had sold as part of the
divorce. Knowledge in this scenario is truly power.

It is critical during your time of marital transition to realize that you don’t
know what you don’t know….but there are professionals available to help
you. Your professional divorce team should be made up of experts who
can ensure that you have the information needed to make the best
decisions for you and your family! Don’t go this alone. As we say at WNY
Divorce Financial Advisors, LLC “Think with your head and not your
heart!” Let us help, contact us today at gina@wnydfa.com to schedule a
confidential introductory call.