As attorneys who regularly help clients get through divorce and move on with their lives, we understand just how emotionally draining divorce can be. And yet, as attorneys, part of our job is to “clean up” some of the financial mess that can result from poor decision-making during the divorce process.
In an effort to help you avoid some of the biggest mistakes that can have lifelong impacts, we discuss the most important mistakes to avoid while going through a divorce:
Big Ticket Purchases
Be careful about purchasing unnecessary big-ticket items like new cars or homes. While they may have been affordable before, you will likely find that you have new expenses that you have to handle entirely on your own now, which makes purchasing big-ticket items like this problematic.
Cashing in on Investments and Retirement Accounts
Be careful about cashing in on investments and retirement accounts (like 401ks) because these can carry substantial tax consequences later on. It may also steer you off-track from the various goals you and your attorney discussed and place you in a higher income tax bracket, which carries a whole host of additional consequences. Also, keep in mind that you pay the IRS a penalty if you cash in on your 401k funds before reaching age 59 ½. If you are receiving some portion of your ex’s retirement accounts via a qualified domestic relations order (WRDO), you can place this into an IRA in your name and continue to defer paying taxes on the funds.
Sticking to a solid plan for your financial goals during this time is extremely important, and your attorney can help guide you in the right direction.
Quitting Your Job
Many couples are concerned about the pending loss of the alimony tax deduction. Do not let this trick you into doing something drastic, like quitting your job in order to avoid paying alimony. Taking drastic actions like these can not only have obvious financial consequences, but they can land you in court and end up costing you even more in legal fees.
The Family Home
As attorneys who regularly practice in this area, one mistake we frequently see clients tempted to make is holding onto the family home at all costs. While your home may seem like the biggest, most important asset in your life, keep in mind that trying to keep up with the mortgage and maintenance on your own may end up being too much. Some homes also end up in a negative equity situation, whereby you are stuck with a home that is worth less than what you owe on it.
Holding onto your home may or may not be the right decision; just make sure that any big decision like this is thoroughly vetted with your attorney and others, such as your financial advisor so that you stay on track financially.
Avoid Making Mistakes—Contact Our Illinois Divorce Attorneys Today
As attorneys, we understand how difficult and stressful divorce can be, and how tempting making impulsive decisions can seem, especially now that you are finally “free.” Be careful about succumbing to these temptations—take a deep breath, contact our experienced Illinois divorce attorneys, and proactively take control of your financial life.