Divorce can be emotionally and financially overwhelming. That's why I'm teaming up with Sunny Wishart, president and founder of A la Carte Financial and a certified financial planner. We will show you how to understand all things money without feeling ashamed, overwhelmed, or embarrassed. You will learn. Learn more. Ask questions. No question is a dumb question. Welcome to Money with Sunny.
Today we're going to talk to you about the ten biggest mistakes people make around money when transitioning through divorce.
1: Not Understanding Your Finances:
People transitioning through divorce often lack the awareness which leads to unfair asset division or financial instability post-divorce. This happens because they didn't pay any attention to finances from the start. It is very important to be involved in financial matters from the start. It is often the women who are left with the short end of the stick post-divorce. Sometimes also because the husband could have hidden some assets over time without the wife’s knowledge and suddenly when their kids are of age, the ex-spouse has made them executors of his estate. Suddenly you've got your 19-year-old kid handling your ex-spouse's estate, and you have no idea how to support this because you didn't have any idea what was going on in the first place.
2: Overlooking Hidden Assets:
You can't overlook something that is hidden because you don't see it. In the end, you end up with an unfair division. When a situation like this arises, experts who work with you can only help you move forward from this situation as unscathed as possible. If you haven't come to an agreement yet, consider anything that you may not yet have looked into, do a little digging, and try to see if you can get a clear, fuller financial disclosure. There are also hidden liabilities that could be easier to find. But dig into what you currently have and try to piece together the puzzle if you suspect hidden assets.
3: Neglecting Credit:
Credit is a very, very powerful financial tool. It's very important to your financial health. Maintain it as properly as you can and keep an eye on your credit bureau. Make sure there are no fraudulent activities or mistakes. Now, if you're filing for bankruptcy or going through settlement, it is a slower process, but it's not an unmovable process. Good credit is going to make you the most appetizing borrower to lenders. So while you’re transitioning through divorce or settlement and need to move forward with buying your own house, if you have a strong credit score, lenders will prefer you and even scramble to give you the best interest rate which can save you a lot of money.
4: Not Seeking Professional Advice:
It's not just about professional advice, but it's about the right professional advice. You have to make sure you're not working with someone who is opportunistic or that you've always defaulted to your spouse to make the choices and now you're running around trying to find your own professional to work with. The right professionals are going to keep your finances running like a well-oiled machine.
5: Emotional Spending:
Engaging in emotional spending during and after the divorce proceedings can deplete financial resources and hinder long-term financial stability. We all do emotional spending whether we’re going through a divorce or not. It's probably going to happen. Whether it's emotional spending or emotional NOT spending, both are bad. While it is okay to spend emotionally once in a while, you have to make sure it doesn’t become a repetitive pattern. It's okay to spend emotionally but put parameters around it. And don't feel bad, because when you feel bad, it kind of perpetuates the emotional spending. It keeps it going.
6: Not Planning For The Future:
Failing to consider long-term financial goals and retirement planning while going through a divorce is a big problem. Planning for the future feels almost like an oxymoron, like planning for the future where you don't know where you're going to land. In this stage, depending on what mind frame you're in, sometimes it's more important to not work towards your future but to protect your future. So in the interim, this isn't a time to stash money away for retirement. This is a time to preserve what you have already stashed away for retirement. If you have RSPs, leave them alone. Divorce can be expensive so make sure you are not racking up your credit cards and your debt.
7: Agreeing To Unfavorable Terms:
When you're transitioning through divorce, it is a highly overwhelming and emotional time, and agreeing to unfavorable terms can lead to financial struggles in the post-divorce period. Sometimes agreeing to an unfavorable term might be the only way to move the divorce process forward and a situation like this is not predictable. To make sure you are prepared for how the divorce process turns out, it is best to meet with a financial expert as early as you can. Some people leave this for the last minute and it is too late by then. So meeting with someone a little sooner may help to clear a few things up. And sure, some of the agreements that you make to end this relationship and be able to move forward, may not be perfect, but they can be temporary and work well for a shorter period.
8: Underestimating Expenses:
Another mistake people often make is underestimating post-divorce living expenses and the expenses that have accrued in your marriage that are now liabilities. Underestimating expenses is almost human nature. In today’s world we need to round up because it is expensive out there and by underestimating our expenses we end up living beyond our means. That is when you start accumulating debt and end up running on a hamster wheel and can’t figure out a way to move forward. So always round up your expenses and create a buffer for yourself.
9: Not Establishing An Emergency Fund:
This is the extra bit of cash that's there for you in times of need for things like a new doorknob, for fixing your car, or for the child who you want to sign up for summer camp. It is your savings for uncertain situations.
10: Ignoring Tax Implications:
If you're not filing your taxes, you're losing out on things like child tax credit, and other benefits that are available to you. Yes, you can get tax liability, say, if you and your spouse had a ton of real estate and you're liquidating, you're going to look at tax implications. But everything else, like pension transfers and RSPs, it's all very tax-sheltered, and you will receive benefits. You should work with accountants in those cases and even in cases of filing your taxes because when you change from married to divorced or single, whatever you tick on the forms, your benefits change. And the accountant will guide you properly, explaining the pros and cons of change in status.
How do you avoid these mistakes? Thorough financial education from the beginning and seeking professional advice as early on as possible. Keep a positive mindset and when you don't understand something, ask questions. There is no silly question. Baby steps, and little accomplishments are going to give you the confidence that you can do this one step at a time.
Remember you are perfect, you are loved, you are worthy.
Wendy
xoxo
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