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Three financial mistakes to avoid in your divorce

Divorce can be expensive despite the best intentions to keep costs down. However, some costs are avoidable with careful planning. Three potentially expensive mistakes to avoid include not having a financial plan, cashing in investments and forgetting the tax implications of alimony.

Not having a financial plan

With all the changes that divorce brings, it may feel like creating a financial plan is the least of your concerns. However, by not having a plan, you may be more vulnerable to making poor financial choices for your situation. People without a financial plan can be prone to purchasing items they do not need and trying to maintain a lifestyle they can no longer afford. If not avoided, mistakes like these can impact your financial situation for years into the future.

Cashing in investments

When money is tight, it can be tempting to cash in investments to pay current expenses. Many people rationalize this to themselves by thinking that they will just put the money back after their divorces are finalized. Though there are situations when this may be your best choice, selling highly appreciated assets may result in you owning significant taxes. It is important to consider all tax implications before cashing in any investments, so you are not caught off guard by the repercussions of that action.

Forgetting the tax implications of alimony

Not all divorces warrant alimony awards, but if alimony is a component in your divorce, be sure not to forget the tax implications that may accompany it. Before 2019, the wealthier ex-spouse typically received a tax deduction for making alimony payments and the ex-spouse who received the payments would pay the income taxes on them. However, tax laws have changed, and now require the person paying alimony to also pay the taxes on it. The person receiving the alimony no longer pays taxes on the payments. Overlooking how this new tax law will affect your situation could leave you financially unprepared for the results.

Divorce is expensive enough without also making financial mistakes along the way. Having a financial plan can help you avoid making some of those mistakes. Avoiding cashing in investments and considering the tax implications of alimony can also help prevent common financial mistakes during your divorce.


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