There are a number of major life-changing events that necessitate a careful review of your finances and plan for prosperity. Unfortunately, divorce is one of them. Already a traumatic experience, the dissolution of a marriage also brings with it a range of financial implications, many of them quite devastating.
The good news is, with careful planning and pre-knowledge, you can navigate this tricky time effectively and make sound decisions that will protect your wealth and guarantee lifestyle security. And it all starts with an awareness of the common financial pitfalls of divorce.
5 Financial considerations to keep in mind when getting a divorce
1. Excessive legal fees
The irony is that while arguments about money often play a role in the breakdown of a marriage, getting divorced can leave you in a far more stressful financial situation than before. Depending on the type of divorce filed and the kind of professional assistance you draw on, fees can very quickly become crippling. Ideally, you want to avoid hiring an attorney and entering into a lengthy legal battle – an uncontested divorce will save you significantly, so try as best you can to come to an agreement on the terms of the divorce yourselves, before approaching a lawyer. Working with a divorce mediator is also a good option – this neutral third party will help you to negotiate a settlement and cost you much less than standard litigation.
2. Rising costs
Depending on your prior standing in the marriage and which side of the divorce you’re on, you could land up with a lower income and higher expenses after the separation is finalised. Remember that many of the costs that you were once splitting between two (groceries or the bond, for example), you now have to cover alone. It’s important that you keep this in mind, do the required math and put plans in place to ensure that your new situation doesn’t bring you to your knees.
3. The risk of overlooking certain assets
How you divide property and other assets will depend on your marriage contract, but a common trap that many fall into is forgetting to list certain funds and policies when negotiating a settlement. Overlook something like a pension fund, an offshore investment, a retirement annuity, a trust or even cryptocurrencies amid all the heightened emotions of a separation and you could land up losing out significantly on the financial front.
4. Tax consequences
Many decisions you make during the course of your divorce will have tax implications that could either benefit or greatly disadvantage you. For example, if you decide to cash in a pension fund, you’re going to end up paying unnecessary tax on a reserve that’s meant to sustain you in your later years. It’s critical that you’re aware of the potential consequences of every action you might take in advance so you can make sound choices for your wealth prospects.
5. The impact of emotion
In the same way you shouldn’t let your heart rule when it comes to investing, it’s best not to let emotions guide the calls you make when handling a separation. Naturally, this is much easier said than done in the context of a divorce, which is an inherently difficult time, but it’s important you don’t make any hasty financial decisions or act out of anger or grief – you could just end up being disadvantaged in the long-run. For this reason, it’s often helpful to call on a professional who can provide restraint and objective guidance during this tough period.
Ultimately, the safest way to navigate the financial pitfalls of divorce is to hire a reputable financial adviser who can help you determine the best settlement options for you. As private wealth managers, we at TRG have your best interests at heart and can help you put in place a post-divorce financial plan focused on wealth protection and growth.