Divorce is a highly emotional process, and it’s easy to overlook financial details in the midst of everything else. Unfortunately, mistakes made during divorce negotiations can have long-lasting consequences on your financial future. To help protect yourself and ensure a fair settlement, it’s critical to recognize potential red flags and address them before they become costly problems.
1. Incomplete or Inaccurate Financial Disclosures
Transparency is essential in divorce negotiations, but not every spouse is forthcoming with their financial information. Hidden assets or underreported income are more common than many people realize.
Be on the lookout for signs such as:
For instance, one client noticed a series of withdrawals from a joint account labeled as “business expenses.” Upon investigation, it turned out the spouse was funneling money into a separate account. With the help of a CDFA, those funds were added back into the marital estate.
If something doesn’t feel right, don’t hesitate to dig deeper. A Certified Divorce Financial Analyst (CDFA) or forensic accountant can help uncover discrepancies.
2. Overlooking the True Value of Assets
Not all assets are created equal. Some may appear valuable on paper but come with hidden costs or complications that reduce their worth.
For example:
It’s easy to get caught up in emotional attachments or focus solely on dollar amounts, but understanding the full picture is crucial. A CDFA can help you assess the real value of assets and determine which ones align with your long-term goals.
3. Ignoring Tax Implications
Taxes can have a profound impact on the true value of your divorce settlement. Failing to consider them can lead to unexpected financial burdens down the road.
Some common tax-related pitfalls include:
For example, a client once chose to take a larger share of an investment portfolio, only to realize later that capital gains taxes would drastically reduce its value. By consulting with a CDFA, they were able to renegotiate the settlement to include liquid, tax-free assets.
4. Overlooking Long-Term Financial Needs
Divorce isn’t just about dividing assets today—it’s about ensuring financial stability for years to come. Many people make the mistake of focusing on short-term needs without considering how their decisions will affect their future.
Ask yourself:
For example, one client chose to keep the family home but struggled to afford the mortgage, taxes, and upkeep on a single income. In hindsight, selling the home and using the proceeds to invest in a diversified portfolio would have been a better financial move.
5. Failing to Account for Hidden Costs
Divorce often comes with expenses you don’t anticipate during negotiations. These can include:
One client overlooked the cost of moving into a new home after the divorce. Between the security deposit, utility setup fees, and new furniture, they quickly depleted their emergency savings. Building a budget that accounts for these hidden costs is critical.
6. Overlooking the Importance of Financial Independence
One of the most empowering aspects of divorce is the opportunity to establish financial independence—but this requires careful planning. Ensure your settlement positions you for long-term success by:
For instance, a client who initially wanted to rely on spousal support shifted their focus to securing a combination of liquid assets and retirement savings. With a clear plan for investing and budgeting, they were able to build a more sustainable financial future.
7. Not Seeking Professional Help
Navigating the financial aspects of divorce is complex, and trying to do it alone can lead to costly mistakes. A CDFA can help you:
For example, one client was overwhelmed by the prospect of dividing multiple investment accounts and a pension. By working with a CDFA, they were able to simplify the process and ensure they received their fair share.
Final Thoughts: Protecting Your Financial Future
Divorce is one of the most challenging transitions you’ll face, but it’s also an opportunity to create a fresh start. By staying vigilant for financial red flags and working with the right professionals, you can help protect yourself and secure a settlement that supports your long-term goals.
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Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.
The foregoing information has been obtained from sources considered reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Elana Milianta and not necessarily Raymond James.
