Avoid these common financial mistakes in divorce

Avoid these common financial mistakes in divorce

| Jul 22, 2020 | Divorce

Florida couples going through divorce may make decisions that have a long-lasting effect on their financial health.

Forbes warns against common financial mistakes divorcing couples sometimes make.

Watch out for taxable distributions from retirement accounts

Resist the urge to tap into your 401(k) to fund the cost of a second home or new car. When you withdraw funds from your 401(k), you may find the distribution taxable. If you are younger than 59 1/2, you may also owe a 10% penalty to the Internal Revenue Service.

If you receive some of your spouse’s retirement accounts under a qualified domestic relations order, you may defer taxes if you invest those funds in an IRA instead of taking a cash distribution.

Keep your job

You may wonder whether to quit your job to avoid paying alimony. Giving up a paycheck to escape this obligation may have costly consequences. It is unlikely you can live without a paycheck indefinitely, and you may end up paying alimony anyway when you are ready to return to work.

Recognize the financial impact of your choices

Take your time to decide what to do with the family home. You and your partner must weigh the financial impact of keeping the house. Do you have equity? What are the maintenance costs? Do you owe a mortgage?

Be prudent with purchases. The mood boost you feel from that new car may be short-lived when the time comes to make the monthly payment.

Develop a strategy

The emotional upheaval of divorce may cause you to make hasty decisions. Work with a financial planner who can help you develop a long-term financial strategy.

You may find that collaborative divorce balances the emotional and financial needs of you and your spouse. Mediation may set the stage for you and your partner to negotiate a fair settlement that serves everyone’s interests.