5 Financial Mistakes People Make During Divorce
September 07, 2016Getting divorced is the pits. It’s been almost a decade since mine, but I still remember how emotionally painful it was, even though I was the one who started it all. No matter what the circumstances, unraveling a life together is painful and can be financially devastating too. While you may not be able to avoid some of the financial fall-out from ending your marriage, make sure you’re not making it worse by avoiding these five common mistakes people make:
1. They stop paying the mortgage or rent because they moved out. If both of your names are on the mortgage or lease, just because one of you no longer lives there doesn’t mean that you’re not obligated to keep paying. The bank doesn’t care about your marital problems.
When I moved into my own apartment while we still owned a house together, it would have been easy for my ex to get back at me by not paying his half of the mortgage. Thankfully, he put his long-term financial security over his pride, but if he hadn’t, it would’ve been on me to keep making the payments until we sold the place. Make sure that your spouse is still paying and if not, you’ll have to bite the bullet and pay. It’s worth it to save your credit in the long run.
2. They stop making payments on joint credit cards. Even if your (soon-to-be-ex) spouse runs up the bill taking his new girlfriend out on fancy dates (cancel that card ASAP!), if your name is on the account, you’re on the hook for the money. This is a tough pill to swallow, but if you stop making at least the minimum payments before you can get your name off the account, your credit will be in shambles along with your relationship. You can negotiate who will ultimately pay this debt through your divorce agreement, but while you’re in that process, you need to stay current on any bill that has your name on it, no matter who is benefiting from the service.
3. They keep their money in the joint account. One of the first things I did was open my own checking account and transfer my money over. With a joint account, either of you could remove all the money and leave the other high and dry, a tactic I’ve seen many bitter spouses employ to “screw him/her over.” Don’t risk a nasty argument leaving you penniless until a judge orders your spouse to give you the money back. Plus, the sooner you can get a budget in place for your new living situation, the more you will be able to focus on healing your heart without having to worry about money.
4. They insist on keeping the house, even when they can’t really afford it. Divorce is devastating, unsettling and uprooting, especially if you have kids. I totally get why you would want to minimize that impact by keeping your family in the same home. Unfortunately, I see too many women cling to the family home only to find that they either can’t afford it or they are “over it” and ready to start over. Then they’re stuck with the house and no settlement money.
It’s even more devastating to watch them lose the home (and any equity they had in it) to foreclosure and have to start from scratch. Not sure if you can reasonably afford it? Talk to a financial planner before you sign the divorce agreement.
There are financially compelling reasons to keep the house, but if you’re burying your head in the sand about whether you can afford the mortgage once your spouse’s paycheck is gone, please re-think how badly you need to stay in it. Give your kids some credit. They’re resilient and can handle a move.
5. They use their settlement for a financial quick fix. A divorce settlement, whether it’s a portion of your ex’s retirement money or just a chunk of your shared savings, is intended to give you your fair share of the long-term savings that you accrued during your marriage. Its purpose is to equalize your chance at being able to maintain the path that you were on toward retirement or long-term financial security.
It’s not supposed to be the money that your ex “owes” you for your lost time together so that you can go on that dream vacation or shopping spree that you could never afford before. Don’t treat your settlement as a windfall. Treat it as you did before you were married – long-term savings to protect you in case of financial emergencies.
Becoming financially independent (sometimes for the first time) after a divorce takes work and can be very scary. By avoiding these financial mistakes, you’ll be on the road to feeling in control of your financial destiny much quicker. Getting divorced? What questions do you have about your finances? Let me know on Facebook or send me a tweet and I’ll do my best to help.
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