Divorce can be an all-consuming process, taking an enormous emotional toll as well as causing negative financial consequences if it becomes contentious. The stakes get much higher for high net-worth couples.
One way to take control is to ensure you are educated about your financial situation and know where your accounts are located, what assets you and your spouse own and have the documentation to back it up. It’s also essential to avoid costly mistakes when parting ways.
Five common errors made during divorce
Everyone copes differently but exercise caution when taking any actions that could hurt your financial future. Avoid rash decisions, such as:
- Shopping sprees: Many spouses going through a divorce believe a new car or home will help them feel better. However, those assets could count against you when dividing marital property or exceed your future budget limits.
- Cashing in investments: Selling highly appreciated assets to pay current debt can have adverse tax liabilities and have long-term impacts on your financial goals.
- Ignoring tax consequences for spousal support: Under the new tax law, spouses paying alimony no longer receive a tax deduction.
- Cashing in retirement savings: Cash can be tight during a divorce, even for high-asset couples, but taking distributions from 401(k)s or other retirement funds can result in penalties and put you in a higher tax bracket.
- Fighting over the family home: Maintaining an expensive home on reduced income can be difficult, especially if the property is worth less than what is owed. Consider all your options before making an emotional decision to stay put.
Look for knowledgeable legal help
Divorce can be an extremely complicated process for high-asset couples, especially when it includes stock options, offshore investments and business operations. An experienced family law attorney here in California will diligently work to protect your rights and see that assets are split fairly through negotiation or fight for you in court if necessary.