The emotional turmoil caused by divorce can make it hard to think clearly, but when it comes to your finances, you need to keep a cool head. Poor decisions you make during the divorce process can have lasting effects on your life. You might end up with far less money than you had planned after your divorce, or you may have to pay costly expenses.
Forbes explains some of the financial mistakes a person may make during a divorce. Awareness of these problems may save you from financial struggle and emotional heartache.
Racking up expenses
Some spouses are eager to start a new life once their marriages are over. You might feel like purchasing a new vehicle or home, or want to spend money on a new love interest. However, some people forget that they now bear the sole responsibility for their bills and no longer derive an income from a former spouse. Those bills could quickly become costly and burdensome if you are not careful.
Tax issues
Because of the costs associated with divorce, you might want to cash in on your investments or retirement accounts to free up some quick cash. However, you should not ignore the taxes you will likely have to pay on your investments. Taking money from 401(k)s and IRAs may cause you to pay taxes and penalties for prematurely cashing them in. Selling off a highly appreciated asset can also mean you have to pay taxes on it.
Fighting for the house
You may have strong feelings about your marital home and want to hold on to it. However, fighting for the family home might cost you a lot in the long run. Some couples own expensive homes which can be a drain on the finances of the spouse who ends up with it. You might become stuck with hefty property tax bills, expensive upkeep, and outstanding mortgage payments.
Lack of financial planning
Spouses make a lot of financial plans with the knowledge that they share a financial relationship with another spouse. However, your divorce means your financial situation will change. You will have to make new plans that take into account your new situation as a single person and without the benefits you had as a married spouse. A failure to plan for your future can blind you to financial moves you need to make to build up money for retirement and avoid debt.