5 tips to avoid making financial mistakes in a divorce
Divorce can be one of the most traumatic life experiences. Many negative emotions can lead to costly mistakes or poor decisions.
“Divorce is never easy, mentally or physically, and can often be a long process. Here are some tips to avoid making messy mistakes that might cost you time and money,” says Kerry Sutherland, a certified financial planner at Alexander Forbes.
1. Mediation is far cheaper than lawyers
Should you and your spouse be willing to go this route, it will save both time and money. This is called an uncontested divorce. A mediator is a neutral lawyer who specialises in family law and will negotiate the best, flexible and most viable option for both parties.
2. Be aware of the value of your assets and liabilities
Also understand your spouse’s income from ALL sources. If you suspect that your ex is hiding assets or not disclosing their true income, you need to discuss this with your lawyer and possibly the court. Not disclosing all your assets in the accrual calculation is illegal and could result in your spouse being held in contempt of court.
3. Have enough cash to see yourself through the divorce process
Start planning and set aside some cash. The worst-case scenario is where your spouse draws out the divorce on purpose, which means you can no longer pay your legal fees and you are forced into an unfair settlement.
4. Budget carefully and honestly
Be realistic about what you think your spouse can afford to pay you going forward, if anything. You will need to budget carefully and if, for example, you feel that it is too expensive to stay in your current home, you need to sell it as soon as possible to avoid getting into unnecessary debt.
If your divorce agreement states that your ex must pay you monthly child maintenance or alimony, consider taking out a life and disability policy on your ex’s life. In this way, this income can continue should they die or become disabled and unable to work.
5. Understand the true value of all assets
For example, your spouse’s retirement fund is not worth its statement value should you wish to cash it in. There may be an early cancellation penalty and tax will also need to be deducted before the money can be paid out. The net value thus needs to be worked into your calculations.
Should you have a claim against your ex’s retirement fund, make sure that your divorce order is correctly worded and lodged with the administrator of the retirement fund.
Be careful on the valuation of any properties. The estate agent’s valuation may not be realistic based on the current property market and their commission also needs to be deducted from the sales price.
Prioritise your needs over your wants when it comes to envisioning your new life. Be realistic about how the divorce will affect you financially so that you are satisfied with the outcome.