If you have made the difficult decision to divorce your spouse, it is important that you protect yourself by making smart financial decisions. As you go through the divorce process, it may be beneficial for you to consult an attorney who can advise you based on your specific circumstances.
Experts say there are certain financial mistakes divorcing spouses make that render the divorce process a lot more difficult. A couple of the most common mistakes relate to alimony, or spousal support, for the lesser-earning spouse. Many divorcing spouses are unaware of upcoming changes to the tax laws with regard to spousal support. In the past, a spouse paying alimony would get a tax deduction while the spouse receiving alimony would have to pay taxes on the amount received. For divorces finalized after December 31, 2018, though, the payer spouse will no longer receive a deduction, therefore putting them in a higher tax bracket. As a result, some people may decide to quit their jobs to avoid paying their spouse alimony altogether. However, this decision may end up being costlier than just paying alimony, especially considering the expenses associated with divorce and the everyday costs of living.
Many California couples also make various asset-related mistakes during the divorce process. Some soon-to-be divorcees decide to celebrate their new single status by making an expensive purchase, but many of them don't realize that they may not be able to afford such a purchase without their ex's income. Divorcees may also attempt to sell off their investments to pay bills and other current expenses. Some people may even decide to tap into their 401(k) to solve their money problems. However, selling these assets or withdrawing money from your 401(k) may result in substantial taxes, and you could end up losing sight of your financial goals. Some divorcees also mistakenly decide to fight to keep their house, even when they cannot afford the upkeep.
One of the biggest mistakes soon-to-be divorcees can make is not having a financial plan. Speaking to a divorce attorney and financial planner can help you get organized and avoid making mistakes that could hurt you in the future.