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A Dozen Financial Pitfalls At Divorce To Watch Out For!
Jan L. Warner, Esq.

1. LETTING EMOTION CLOUD THE REAL ISSUES: In divorce, mixing money and emotions is like trying to mix oil and water. They don't mix, and trying to meld the two can cause a real mess. Granted, divorce is emotional, but it is also a business negotiation. You must be prepared to talk in a business-like manner in your lawyer's office. Do your crying before - or after - on the shoulder of a friend, family member, or therapist. And don't use money as a weapon. Everyone wants his or her fair share, but don't be vindictive. This attitude will hamper your case and increase the cost of your divorce. If your marriage must end, make your divorce a success and create the second chance you both need.

2. NOT DEVELOPING ALTERNATIVE SOURCES OF INCOME. The financially dependent spouse -- often the wife -- may put aside her own career development in favor of raising the family, never suspecting that divorce will come along. And many are not aware that divorce courts may force them into working, even though they lack the training or their credentials are out of date. Unless there is a disability involved, this is a great time to get some career counseling and to go back to school. Think about a settlement that includes money for tuition, books, and living expenses while attending school and getting a career on track or back on track. There's nothing like knowledge and a fulfilling career to bolster self-esteem and to get one's mind in focus.

3. NOT GETTING GOOD PROFESSIONAL ADVICE. When you are getting a divorce, you need all the help you can afford. If you hire an attorney based on a bargain price, nine times out of ten you may wind up getting less than you deserve or paying more than you should. Hire the necessary professionals to help advise you on the settlement and its tax consequences. And if you and your spouse can still talk but can't agree, think about using an arbitrator to help you work out some of the details. You may want to see a good therapist to help you through the emotional crunches that always accompany divorce. But, most importantly, take your time. The divorce process takes time. Be prepared to take as much time as necessary to plan your divorce -- just as you did when you planned your wedding. This is your opportunity for a new beginning.

4. NOT BEING FOCUSED ON THE IMPORTANT THINGS. You must focus on what's important. That Daddy was five minutes late picking up or bringing home Junior is unimportant. That Mommy was five minutes early is no reason to keep her sitting in the car until the bewitching hour. Sure, people should be on time, but let's get serious. Let's not fight over the stainless steel. The important questions are major children's issues and money. That's it. And the sooner we all recognize it, the better off we'll be.

5. NOT BEING PREPARED FOR THE WORST. If you fear that you will not have enough money to live on -- whether you will be paying or receiving -- figure out the worst that could happen to you. Then decide how to deal with the situation. From whom can you borrow? With whom can you move in? Is public assistance a temporary solution to help you get on your feet? But don't panic and let money rule your decisions. Although you should never stay in a bad marriage for financial reasons, you should not terminate a relationship in hopes that the grass will be greener on the other side.

6. NOT STANDING UP FOR WHAT'S RIGHTFULLY YOURS. Even though it may seem inconsistent with resolving the economic aspects of divorce, divorce is about survival, not good manners, although survival and good manners needn't be mutually exclusive. The financially dependent spouse -- often the woman, even if she is employed -- may have been brought up to be a peacemaker, supportive and sensitive to the needs of others. A dogfight may be foreign to the participants. But that's not a reason to lay down and either give up your fair share or not get what you need from your settlement. Don't underestimate your needs, but don't overestimate them either. For example, alimony is generally taxable, so women should not forget to consider the consequences -- including the income taxes when due.

7. NOT TAKING CONTROL OF YOUR LIFE. Divorce is the time to take control of your life. If you don't do it now, there's a good chance you never will. If you go to bed worrying, you won't sleep well. And that can be the beginning of bigger problems that you won't be able to solve. So don't worry in the dark. If you can't sleep, turn on the light, get a pen and paper, and write down your concerns. Then go the sleep with the comfort that you will be able to deal with them in the morning when you're fresh. Take control of your finances. Take control of your situation. Listen to the advice of your lawyer, but remember that your lawyer will not be there to help you in the years that will follow your case. Make your own decisions only after you have become informed.

8. THE "IGNORANCE IS BLISS" SYNDROME. When it comes to divorce, ignorance is not bliss. To the contrary, it is downright dangerous and can be very expensive. Remember that this is your divorce, not your attorney's. While you will get advice from your attorney, the decisions are yours to make. But in order to make them, you must be informed. So learn about the legal process, explore your financial options carefully, and search for information about family matters that you may have ignored for years. You may look on your marriage as a failure, but that doesn't mean your divorce must be a failure, too. Learn about your options so you can make smart decisions.

9. GOING TO A LAWYER WITH NO RECORDS. During marriage, most folks don't document things. Why should they? What's the need when everything is moving along just fine. Then, "WHAMMO!" In preparing for your future, you must analyze your past because your past will help you determine your future needs. You'll soon find that everything must be documented. So get copies of loan applications, financial statements, brokerage statements, tax returns. Before you go to a lawyer, analyze your family's spending and earning history. List all your assets with both cost and market values. Your tax returns are like a treasure map that can show where the hidden assets may be buried. And you will save costly attorney and expert witness fees if you get your records together. It's much less expensive to do this, by the way, before the separation than afterwards, when one must use the legal process of discovery to get the records.

10. OVERLOOKING ASSETS: When it comes to divorce, make sure you don't overlook your share of marital assets to which you will probably be entitled. Inventory safe deposit boxes, track down bank and brokerage accounts, photocopy pay stubs and stubs from dividend and interest checks, and review retirement plans and insurance policies. If a business is involved that generates cash flow, engage a forensic CPA to search out the tell-tale signs of additional income. Don't overlook side businesses that generate income and hobbies that involve expensive equipment. And don't forget collectibles like old electric trains and football or baseball cards. They may be worth a fortune.

11. IGNORING TAX CONSEQUENCES. Divorce can generate all kinds of tax consequences -- income, estate, and gift. Many of these are "hidden" and ignored until it's too late. For example, the major assets in a marriage are generally the home and a pension. Both are tax booby-trapped. It's not unusual to see a home worth $150,000 having a $50,000 tax basis. And that can mean a hidden tax liability to the unwary spouse who gets the house, sells it, and then has to divide the equity. If the house is titled on one spouse's name and is going to be sold, maybe it's a good idea for one to transfer a one-half interest to the other before the sale so both will treated equally. And if there's a chance that past tax returns omitted income or overstated deductions, indemnification in a settlement agreement is a necessity. To avoid getting stuck with taxes on income you know nothing about, you may not want to file a joint tax return after the date of separation.

12. NOT ENOUGH PREPARATION. When people decide to separate or divorce, important details often fall through the cracks because people don't get prepared. If you think that divorce may be for you, then you must plan, just as you would plan for retirement. Find out about the legal process and consult with competent lawyers and professionals. ACT, don't REACT. Don't think that packing your bags and driving away in a car that needs four new tires is the answer. Put tires on the car, fix your child's teeth, and purchase what you will reasonably need. Timing is important, so don't even think about selling the home or other real estate in a down market. And if you've been married for nine years and six months and one of you hasn't worked outside the home, don't divorce until you pass the ten-year mark so the non-financial partner can collect on the working spouse's Social Security -- without reducing the worker's benefits.

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