If you are starting to go through a divorce, you’re probably experiencing a range of difficult emotions, but you’re also dealing with drastic changes to your financial situation. While the divorce proceedings will eventually end, it’s important to ensure your financial decisions during a time when emotions are running high don’t have a long-lasting, negative impact on your fresh start. Here are some of the most common mistakes I’ve seen and ways you can avoid them.
1. Staying Too Attached to Your Home
It’s easy to get attached to your lifestyle, especially where you live. Whether it’s the apartment you bought together and lived in for a couple of years or the house you raised your children in for decades, there is some truth to the adage “home is where the heart is.” Homes are a major source of memories, emotions, and … money. Whether you have built equity in the home or are underwater, it’s hard to conceptualize selling it when you’re going through so much stress. Here is where a healthy dose of detachment can truly benefit you. Review your finances to understand whether it’s truly sustainable to keep the home. If you can move out and unlock some of your equity, and either downsize or rent, it may be a better option.
I’m not suggesting that this is easy, or that it’s always best to move out. What I am suggesting is that you try to step back from the situation to see what will be best for you financially over the next 10 or 20 years. Trying to make your monthly mortgage payment when you suddenly have half the cash flow you’re used to can be a recipe for a short sale or foreclosure. Bottom line: Run the numbers to understand the best options for you.
2. Not Getting It in Writing
I’ve heard it too often: “We agreed that he would pay me when he was able to, so I don’t think I need to formalize it. I trust him.” It can be unnerving to ask someone to put their promises in writing, and often it feels very formal for an agreement you believe will be honored. However, if you need to rely on a promise someone has given you and it was a verbal agreement that isn’t backed up by any documentation, it’s pretty tough to prove. If you’re having trouble imagining doing this, think of any woman you idolize. Would Oprah do a deal with only a handshake? Think Beyonce’s endorsement deals are done with a quick call? Think again. You are mapping out agreements now that will impact your life, as well as your child(ren). Whether it’s about custody, alimony payments, what happens if one spouse loses a job and alimony gets put on hold … Get it in writing. Please. Let me say this again: Get it in writing.
3. DIY Disaster
Lawyers aren’t cheap. Especially when you’re more focused on dividing debt than dividing assets. There’s a big temptation to go it alone here to save money, especially if there isn’t much to divide. However, if you have any questions or concerns, there are many affordable divorce coaches who can help you along the way without costing you an arm and a leg. Do some research and connect with a professional who can help you; otherwise, you may be dealing with unintended consequences down the road, like damaged credit, taking on too much debt, and not getting a fair distribution of assets.
4. Not Following Up
There are many loose ends after a divorce, and it’s easy to dismiss some of the work involved after you’ve just been through one of the most difficult life events a person can be asked to handle. Things like changing power of attorney documents, making sure your name isn’t still on a deed or a mortgage, and confirming that you’ve changed your life insurance and 401(k) beneficiaries may seem like irritating tasks that can wait until later. However, there’s no time like the present to really move into your new beginning properly. Review all of your financial documents. Make sure your beneficiaries are updated, your credit report is clean, and you have written confirmation that you’ve been removed from assets and debt that are no longer yours per the divorce agreement. These small checkups can save you a lot of headaches down the road.
Many people like keeping “love” and “money” as two separate subjects, but you have to know how your emotions impact your financial decisions in order to make the best possible decision for you.
Of course, it’s not just the end of a relationship when you need to learn how to balance love and money. Stay tuned next month for Part 2 of my “Love and Money” series for advice on how to handle money discussions if you’re thinking about marriage.
Emily Boothroyd is a member of the DailyWorth Connect program. Read more about the program here.