When a marriage falls apart, both the partners are often seeing with facing troubling issues.it is because, in many ways divorce is expensive and can lead you to spend considerable amount of money from the time to filing for it till the end. Along with the money issue, divorce is also time consuming and emotionally draining procedure. Therefore facing divorce and mistakes to avoid during the whole procedure is something that both the partners in marriage need to keep in mind with sheer consideration. It is because, during the divorce process, either or both the spouses end up making poor decisions for themselves in the area of custody of children, distribution of assets and parenting.
As divorce is not easy, facing divorce and avoiding mistakes in the process is one step ahead. In this respect, below are some of the financial mistakes spouses have to avoid while filing for divorce so that the whole process becomes bearable and less strenuous:
During the divorce process, avoid retail therapy
If you think that you get indulge in retail shopping to alleviate your depressed mood or state of mind, then you are wrong. Deciding to invest substantial amount of money in buying new home, new car and socializing with new faces is a poor decision. Earlier this might have been easy but now this act is something you should avoid. It is because now when you are no longer connected in a bond of marriage the payment for all these luxuries will became arduous for you since their billing is no longer shared.
In order to pay the existing bills, avoid cashing in investments
Once the divorce reaches its completion, you may or may not have a chance to put the money back on your saving or cash accounts. It is because as you sell several investments, you are in reality selling the highly appreciated assets and in the process you are indebted to pay substantial amount of taxes on their behalf. Keep in mind, that since these assets cannot be invested, they will cease to help you in keeping check of your financial goals. It is because, during the divorce process it is probable that your financial goals may have changed a lot in nature.
Forgetting the new Trump tax plan
Before the trump new tax plan came in to action, whenever one spouse paid money to another after their divorce or separation, that money was tax deductible. In this way, the spouse who receives the alimony would become the taxpayer of that income. Now under the terms and condition of the new plan, the spouse who pays the spousal support will no longer enjoy the benefit tax break. In fact, he or she will fall under the high taxpaying bracket as opposed to the receiving partner. What does that mean? It means that with high amount of taxes charged on alimony, the amount of money transferring from one spouse to another will consequently become less. And of course, this point is not favorable for the divorcing twosomes.
Relying solely on 401(k) distributions and closing your eyes to taxes
Once you file for a divorce, be prepared of the fact that money spending will speedily zoom away from your hands. Along with paying for the lawyer bills, you will also have to worry about payments for a new residence, new car and other substantial expenses that follow shortly after the procedure. Even though you may look at your 401(k) is a solution for all your short term problems but it will cease to help you in the long run. It is because even if you do not have any pending taxes to pay from your side, you never know that a huge tax bill may fall on you any time and if you are under the age of 60, you need to pay 10% of the IRS penalty along with taxes.
A piece of advice for all the divorcing couples is that when you become eligible to get a Qualified Domestic relations Order, under which you can get a segment of your previous spouse retirement account, you should place the money in your IRA account. It is because, this account will allow you to become a taxpayer who can take benefit of delaying taxes for some future period.
Many of the divorcing couple cease to keep this important financial point in mind and take all the money from the retirement account of their former spouse in cash. This will subsequently make them susceptible to pay high amount of taxes.
In this way, the concept facing divorce and mistakes to avoid is sufficient enough to make the couples think twice before filing for divorce. The whole process is not only strenuous but extremely difficult as any financial mistake will lead both the partners in marriage to suffer considerably.
