Your divorce is a turning point. After spending years joining your life to your spouse's, perhaps even raising children together, you must now spend time dividing your lives and making plans to move in different directions.
Certainly, much of those plans will involve finances, and the decisions you make over the next few months will have a profound impact on your financial security and overall well-being. With this in mind, you may benefit from taking a critical look at your situation before agreeing to any arbitrary division of property.
Cutting your losses
It may seem fair to accept asset for asset, trading the retirement account for the house and cutting the savings down the middle. However, financial experts suggest you look at the big picture and calculate the long-term consequences of these decisions. Sometimes something that seems like as asset at first may end up being a liability.
Your house may be a prime example of this. Unless you have no mortgage loan, your taxes are low and your appliances are in factory-new condition, winning the house in a divorce settlement may not really be a win. The benefits are undeniable. You get to avoid one more major change, hold on to sentimental value and keep your kids in a familiar environment. However, consider the following expenses:
- Maintenance and repairs
Also, keep in mind those weekly or seasonal chores like mowing the grass and cleaning the gutters. If your spouse handled these jobs, you may have to hire someone to take care of them. Trading the house for a retirement account or other liquid asset may not be a fair trade, even if both seem to have equal face value.
Is your future secure?
Another consideration is the security of your alimony or child support payments, if you are in a situation to receive those from your spouse. Many divorced spouses who rely on support payments purchase life insurance policies on the paying spouse to ensure those payments continue after the spouse dies.
If you fear you would fall on hard times if support payments stop, or if you want to make sure your former spouse and children continue to receive payments in the event of your untimely death, an insurance policy may be a wise investment.
Other assets may have similar face values but very different tax implications. If you get the 401(k), for example, you will face tax penalties when you withdraw money. You will certainly want to have access to money for your daily expenses, at least until your feet are on firmer ground.
A divorce settlement is often more complex than it seems, and taking assets at face value may leave you with an unfair portion. Before agreeing to any division of property, seeking advice from a California legal professional may be in your best interests.