NEW YORK — If you’re going through a divorce, your future financial well-being may be the last thing on your mind. Unfortunately, when emotions get in the way, it’s easier to make mistakes that may cost you for years to come. Here’s a look at three of the worst financial mistakes you can make during a divorce.
1. You don’t know where the assets are or you lack an understanding of the household finances.
Dividing assets can be “simple math,” as alimony and child support are dictated in most states by a formula, says Michael Rosenberg, managing director of wealth management firm Diversified Investment Strategies.
“By financial professionals, divorce is viewed purely as an economic divide,” he says.
But when one spouse doesn’t have an understanding of the household or business assets, they often don’t know the basis for the concessions they might be called to make, says Derek Gabrielsen, a wealth adviser at financial management firm Strategic Wealth Partners.
“Things can get pretty crazy when you’re in the negotiating room,” he explains. “You have to have a game plan going in as to what you want, and the only way to know what to negotiate for is to have an understanding of what’s there.”
The first step is simply asking your spouse to allow you more involvement in the family finances or just looking at all the accounts to get a better handle on things, he says. If that’s not possible, it may be time to hire a forensic accountant.
“They can dig through everything, including any 401(k)s or IRAs as well as other accounts that may exist,” he says. “They can go back through your tax history and ask questions and make assumptions. If they find holes then they will investigate further, just like what a private detective would do, but for finance.”
Even so, it can be hard to find money your spouse is trying to hide. The best remedy is prevention, Gabrielsen says, and you don’t have to be an accountant to gain a decent understanding of your household’s money.
“It all comes down to this: You love your children more than you dislike your spouse,” clinical psychologist Barbara Greenberg says. Because you’re not just going to be taking care of yourself, you’re also going to be caring for your children, “you have to educate yourself.”
There’s nothing beneficial about one spouse being rich and one being poor, she stresses.
“A lot of people say, ‘I just want out, I’ll deal with this later,’ but then they regret that once they have more energy and more time to think. You don’t want to be one of those people who wake up one day and realize they should have done it differently,” Greenberg says.
“This is not the time to be spiteful and hateful. It is, however, a time to remember that everything you do today has a long-range impact. Divorce is not a single event, it’s a journey.”
2. You don’t have a good financial adviser or legal team.
Everyone going through a divorce should have a team who can answer their financial and legal questions, Gabrielsen says.
“You should have someone who can help you dig deeper into your household finances if you need it. You need professionals who can explain everything to you,” he says.
With the average divorce, you don’t need a huge law firm, but when there are assets at stake you do need a firm with a three- to four-person team who can makes sure everything gets done properly, he says.
Having a trusted financial adviser before and after the divorce is also important. If you and your spouse use the same adviser, it’s OK for you both to continue a relationship with him or her. There are no conflict of interest concerns as with an attorney.
“The financial adviser is legally able to give both spouses advice all the way through,” he says. “They won’t have a role in the divorce proceedings, but before and after they’re going to work to make sure all the assets are explained and to get both spouses settled into a new financial plan, with asset allocation based on their new situation.”
3. You agree to things or expect things that aren’t written in the divorce decree.
“So many times people say, ‘Well, I conceded to this because I thought you were going to do this for me,’ but that wasn’t in writing, so it ended up never happening,” Gabrielsen says.
With the emotions that so often surround divorce, you can’t count on the other person always acting rationally, he says. That’s why everything needs to be in writing.
Inheritance is a good example here,” he says. “Your spouse may say that when he passes, he’s going to pass an asset to your children. Well, that’s something based on a promise that may or may not happen if it’s not written down. There can be no handshake agreements here,” he says.
You can’t know what’s going to happen over time, Greenberg says. In another year, your spouse may have a new family and they may be feeling far less generous.
“I can understand that people want to avoid conflict, so they don’t want demand that something is written down, but things will change,” she says. “Remember that you are not married to this person anymore, and there is a reason why.”
–Written by Kathryn Tuggle for MainStreet.