Money and financial stability are extremely important no matter where you are in life, and when you are going through divorce, it becomes even more imperative to take the right steps toward protecting your financial security. However, the atmosphere that exists during a divorce often makes determining the “right” steps you should be taking more difficult than you might think — changing expenses, charged emotions, and an uncertain future all combine to make it difficult to thoroughly plan ahead. Fortunately, you can avoid many financial headaches by steering clear of the seven common financial mistakes that guys make during divorce with a little foresight and planning. Here are seven common financial mistakes guys make during divorce that you should avoid:
1. Giving up on everything
During a long and drawn out divorce, a lot of guys reach a breaking point in which they are so physically and emotionally drained with the process that they just want to give in on everything to get the divorce over with.
This can be a huge mistake for a number of reasons:
1) Property division is generally final, meaning you cannot go back and try to fight for assets later if you realize you gave up on something valuable or sentimental.
2) It is very easy to underestimate the value of possessions in your home. Refurnishing a whole new house without your fair share of the assets can be extremely difficult.
3) Modifying orders for alimony, child support, visitation, etc., typically requires showing that there has been a significant change in circumstances. You may not have grounds to attempt a modification later if you situation is similar to when the divorce occurred.
2. Not understanding separate and marital property
Determining what is included in the marital pot that is up for division can be a murky area that is frequently contentious during the divorce process. Laws will vary by state, though most will define marital property as anything acquired by you or your spouse during the course of the marriage. This includes money, property, retirement benefits, investment accounts, etc. Separate property typically includes anything owned prior to marriage, and then specific awards received during the marriage, such as gifts and inheritances. While this may seem straightforward, it can get murky when separate property is commingled with marital funds or used to pay for marital assets.
3. Assuming you will keep your own debts and she will keep hers
Just like all wealth and property acquired during marriage is considered marital property and subject to division, so are any debts that are racked up. Just because your wife had bad shopping habits and accumulated thousands in credit card debt while you were responsible with your spending does not mean she will be taking all of that with her in a divorce. Order credit reports for you and your spouse to get an accurate picture of marital debt and brush up on your state’s property division laws.
4. Attempting to hide assets
As long as divorce has existed, people have thought about — or attempted — to keep certain assets out of the marital estate by “hiding” them from the courts. Though it may sound tempting to try to be sneaky and get away with more than your share, it is never a good idea to hide assets in divorce. Technology has made the chances of getting caught very high, and the potential risk of damaging your case is serious. Not only will it paint your side as the “bad guy,” but you also risk financial penalties, a lesser portion of the marital assets and damage to your credibility that is difficult to overcome for the remainder of your case.
5. Not refinancing mortgages
Generally speaking, the marital home is the largest asset and/or debt a married couple acquires during the course of their marriage. Because of this, it becomes one of the most complex to divide after a divorce. If one spouse is awarded the home, you need to make sure to include provisions in the decree regarding refinancing the mortgage; otherwise, both parties will continue to be held responsible for the loan. Clearly, this can cause problems down the line if the spouse awarded the home is unable to afford the mortgage payments.
6. Vague language in your decree
Specific details are extremely important to include in the wording of your decree to ensure there is less room for argument regarding agreements made during the divorce further down the road. Be sure to include the “what, where, when, who and how” whenever possible. This can include provisions for your parenting plan, such as how everyday pick-ups and drop-offs should work or required notice for moves out of you current area, or the reasons alimony can be modified or terminated. Essentially, the more specific you are in your decree, the less room there is to deviate from the agreement without the risk of being held in contempt.
7. Improper drafting of a Qualified Domestic Relations Order (QDRO)
Even after a decree is entered and your divorce appears to be over, completing a Qualified Domestic Relations Order often remains. This document, many times referred to a Separation Agreement, provides instruction to the plan administrator on how to divide retirement accounts and all other assets, debts, liabilities, 401Ks, IRAs, etc. which helps avoid additional fees and tax obligations. If done improperly or too late, it can mean significant fiscal consequences to one or both parties.
These are just some of the more common financial mistakes guys make during the course of a divorce that can be costly and disasterous. It is advisable to take immediate steps to safeguard your financial security during divorce — get a highly skilled divorce attorney to look out for your best interests, and be proactive when it comes to protecting your financial future.
Mat Camp is the editor for Mensdivorce.com, a website dedicated to providing useful information and resources to men before, during and after divorce.
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Time for the exceedingly exciting, significantly sexy topic of taxes and divorce tax planning. Brings to mind the classic episode of The Simpsons that begins with our favorite neighbor rushing to file on January 1, to Homer rushing his bundle past the shutting doors at the close of the post office on April 15th. Whether you go about your taxes Flanders’ style or a la Simpson, you’ve got to do them. But what you should do depends on whether you’re getting separated, getting divorced or already divorced.
First, you’ve got to decide whether to file jointly or separately. If you want to file a joint return, you can only do so if you are still married at the end of the tax year (i.e., December 31). You and your ex-spouse-to-be also must both agree to the filing, which would be “Married Filing Jointly.” Warning: if a court has already issued a divorce decree, then you cannot file jointly for the year in which that decree was issued. No exceptions. Instead, you must file either as “Single” or “Head of Household.” Confused? Of course you are. We’re talking taxes, not baseball. Don’t worry – we’re going to go through all of your options, including the pros and cons, and what you’ll need to qualify for each of them.
Second, we’re not professional tax advisors and everyone’s case is different. So be absolutely sure to consultant your accountant, tax advisor or tax attorney. With that out of the way, let’s get started with divorce tax planning.
Married Filing Jointly (allowed only if you’re not legally divorced). In many cases, but depending on you and your spouse’s respective incomes, credits, deductions, and such, this will save you money. But also keep in mind that each of you is totally responsible (“jointly liable”) for ALL the taxes due on the return, including any tax deficiencies, interests, and penalties. If you’re spouse can’t pay her share, they’re coming for you. You can sometimes protect yourself with a “Tax Indemnification Agreement” – ask your tax advisor.
Sometimes, even the IRS will relieve one spouse of liability for the other under one of three types of relief: “innocent spouse,” “separation of liability,” and “equitable relief.” All the juicy details are in IRS Publication 971. It’s great bedtime reading, but you’re best asking your advisor if you think you might qualify. For the sake of this article, we’re going to just assume that you’re cool enough with your ex that you don’t have to worry about backstabbing and tax brawls. If you’re still married but your relationship is so fractured that you do have to worry, then the benefits of joint filing are likely outweighed by the potential liabilities associated with your difficult divorce.
Head of Household. You qualify as the head of your household only if:
- You and your ex lived apart for the last six months of the year (don’t even skimp on one day, as that’s breaking the law),
- So long as you paid more than half the cost of keeping up a home for your kids (if any), and
- Your kid(s) lived with you for more than six months during the tax year. If so, you’ll also be able to claim a dependent exemption for each kid.
- Plus, You’ll also need to have paid more than half the cost of maintaining the home for the tax
year. Cost means rent/mortgage, taxes, insurance, utilities, and food for the members of the household.
If you qualify to file as Head of Household, then your spouse MUST file as “Married Filing Separately.” If you both file as Head of Household (which is not allowed), expect the IRS to be very unhappy with you. If it is your spouse who qualifies as Head of Household, therefore, you must be the one to use “Married Filing Separately.”
You might ask: with all those requirements, why would I want to even bother trying to qualify as Head of Household? ITTS! – It’s the taxes, stupid! Turns on that filing as “Head of Household” generally gives you a lower tax liability than “Married Filing Separately” would. Among other things, an HOH filing allows you to claim the standard deduction even if your spouse itemizes deductions of his/her own. This means that, as HoH, you can claim additional credits such as the dependent care or earned income credits.
Can you file as HoH after the divorce has been finalized, too? YES! So long as you continue to pay more than half the cost of maintaining the home for the tax year and your children live with you for more than half the tax year, you are one lucky son of a gun. Not only do you get to raise your little monsters but you get some tax benefits to top it off.
Married Filing Separately. If you have to file with this status, you won’t qualify for certain tax breaks, or your tax breaks might be limited. For example, you won’t be able to take the student loan interest deduction or the real estate loss allowance, even if you and your spouse lived together. You also will not be able to take the education credits, the “Child and Dependent Care Credit” or the “Adoption Credit” unless you lived apart for the last six months of the tax year. You can’t even deduct legal fees for the divorce or separation itself. But you can deduct legal fees to get or collect alimony.
If you do use the Married Filing Separately status, then both you and your spouse (or soon-to-be-ex) should respectively report only your respective incomes, exemptions, deductions and credits on your individual returns. You can do this even if only one of you had income.
Single. If your divorce decree has been finalized, and you also do not qualify to file as “Married Filing Separately” or “Head of Household,” you can still file as “Single,” but only provided that you have been unmarried for the whole year or you have obtained the final decree of divorce or separate maintenance by the final day of the tax year. State tax law may vary. Follow it accordingly and again, consult your advisor.
Outsmarting The IRS. Don’t. This only happens in movies. Some people have divorced in one year just so they could file taxes as unmarried individuals and reduce their tax burden, all with the intention of remarrying the next year. You might get away with this if you live in Hollywood, because everyone there gets divorced and remarried a couple of times a year. But for us normal folk, this is not something you want to do.
Special Case: Annulments. What happens if your marriage existed and then never existed? That’s called an annulment. It dissolves the marriages and makes it so that it never legally happened. Hint: This is really, really hard to do if you have kids, because after all, they really did happen. Annulments are also required by the Catholic Church if you wish to be remarried in the Church, for example, but again this is a special case for couples without kids. Let’s say you do obtain a legal annulment. Then you have to go back to every tax return you ever filed and amend and refile those returns as if your marriage had never existed. You’ll need a tax advisor for that, too.
Wrapping Divorce Tax Planning All Up. So, what have we learned here about divorce tax planning, gentlemen? “Head of Household” or “Married Filing Jointly” are options for newly divorced men, so long as you qualify accordingly. (You can’t file as “Single” until your divorce has been finalized for the whole of the year.) You can still file jointly, but you must be careful. If you and your former flame are on the outs, don’t entrust serious matters such as tax payments to one another. If you can be civil not just today, but for some time to come, it’s a good way to go. You’ll each be responsible, however, for the entire tax bill, even if one of you bails on the other. Lawyers call this “joint and several liability.” We call it “getting screwed.” But it’s the law, so you need to know it. This means that if you do file jointly, you had better play nice, because you wouldn’t want her to leave you high and dry – or the other way around. On the other hand, if you engage in some astute planning, you can legally leave the IRS with the least amount of money possible and you with the most. And that’s one thing you and your ex- should be able to agree on when it comes to divorce tax planning.
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So here you are, post the divorce. Daddy dearest to the devilish little lights of your life. Picking up the pieces. Moving on. Getting back out there. Finding love – maybe. That special someone for you outside of your former life. Husband no more, father forever. She might even be excited to meet these little rugrats of yours. She’s the girl for you after all; any trepidation there means you possibly won’t be making the leap of introducing her to your family in their likely-to-be tumultuously reshaped lives. The divorce was a landmark for all. You know there’s no point in taking her just to snap pictures and bail. She’s in: Now, what to do? How to do this?
Kids are a funny thing. We’ve all been there. We all know. Why is it so hard to remember? When was your parents’ split? These days, divorce is so common it might not even shake them up as it did you. If you’re the special sort who grew up with both parents, the good old fashioned “nuclear fam,” you still saw your friends’ families split up, the excited kids who knew how to play up that guilt for sweet double gifts, maybe even good enough to get their respective ‘rents to up the ante and top each other at the Buying Love game. The kids who withdrew into themselves, something different about them but still a mystery to all. The kids who didn’t care and the ones who rebelled, the ones who told the world to go screw itself because they said everything is a lie and everyone leaves you. We’ve met all sorts of kids in our lives and all of us, you, too, are the products of those same kids. We were all one of them and now we can only look from the outside, staring in. Knowing so much more and so much better, but just as lost sometimes. Just the same, only older.
So how do you look your kids in the eye, after everything you’ve all gone through, together and individually, and deliver more news, more change? Well, no one knows your kids like you.
The thing to remember is that they’re on your life journey and you’re on theirs.
What’s going on in their lives? Divorce and school stuff, social stuff, kid thoughts, family issues abounding or settling, possible home/school moving, losing 25,000 souls with one stupid roll off a cliff in Dark Souls 2 (hopefully this is a teen; younger kids might be dealing with Minecraft troubles). Life is Tough. This is change, and it’s always weird to deal with change. So you take them out for some fun and you hang out and listen to them talk about what’s going on – if you’re lucky. You play with the little ones. You relate to the pubescent woes of the older ones. You are a family, together, as always.
What a lot of people – you? – don’t realize is that we bring new people into our families all the time. That childhood best friend who is “uncle” to your kids that he’s seen grow up, looking and acting just like you did back when you guys first met in the woods behind your houses, or on the playground, or anywhere. Family is sacred.
Sacred. That’s what your kids are to you. That’s what you are to them, even if they hate you. You’re their one and only father, role model daddy, the superhero and villain and wicked cool guy they admire, vehemently or reluctantly. Your daughter wants you to walk her down that aisle. Your son wants to be an even better you. They want to make you proud. They want You to make them proud. So, now’s the time to be that man. To be their sacred father and lay it out there.
You’ve been through so much. You married a woman you love, you worked and built a home and family. You caused them pain maybe because in your life, in your path, you came to a point where something needed to change. Whatever your reasons, you and their mom split up. You’ve now become a divorced man, single again, trying to put your life back together. You don’t have it all down. You’re not perfect. You’re trying just like everyone, just like them, just like you’re supposed to be doing. So, you’re living and they’re a part of your life and the most important one. You’re nervous now to show them the rest of it. In the rest of it, there’s no longer just your job and wife. Sometimes you go play pool. You’ve taken up rugby or guitar. You’re learning to dance! That’ll get a giggle out of them. You’re moving on and you’re meeting people and you’ve met one you like a lot. You like her so much that she’s going to be sticking around. She’s important enough that you think they should all meet. That’s all there is to it. She’s no replacement, she’s something new altogether, she’s just herself and you like that self.
Now, ideally, all will go well. But this isn’t a fantasy land. Your kids might struggle with it. All you can do now is be there for them. To process it with them. To help them to process. To just be there, to listen, to understand them. To save them and make everything all better, in that ideal world. SuperDad to the rescue. Make their hurt, fear, confusion go away. Make everything just as it always was, when things were secure and the same and never, ever changed. Lay down the cape. These are real people. Their minds process things differently than ours. Kids take Everything in, they’re looking around, they’re definitely Thinking. They’re thinking so much about everything that they can’t always be concerned with practical matters the way our oh-so-developed minds can. They’re ditching the boring and going for the gold. They sometimes forgo rationalizations and leave you at a loss. They may take it personally because their worlds, like yours and most, are about themselves. That means: How these things relate to them. How much they may or may not be willing to take in a change. Doesn’t the world know that they don’t want it to change?
Let them cry. Thank goodness they have that outlet. You’re a man. You’re an adult and a role model. You’re not so lucky to be free to feel everything that you undoubtedly feel and let that frustration and fear flow out. Hug them because a hug from a father, or even a touch, a look, can melt away so many of the evils of their little wide worlds. This is your power.
Talk to the little people in your life like the grand people they are, the most important and meaningful part of your life…but not the only part of it. Just like their whole life isn’t just about school or Super Smash Bros. or baseball. Just like they have a crush on the cute redhead or the shy boy in Algebra, you met someone you want to be in your life. You can’t keep these two things separate. They don’t hang up their mitts and forget about baseball the second they get to school. They don’t forget that episode of Adventure Time just because it’s time for History. We don’t compartmentalize. They don’t exist in a vacuum and neither do you. That’s all this is: you’re living and your life has met up with another and you want to share some of it, right now. It won’t necessarily be easy, but things are hardly ever easy. What it is – is worth it, it’s vital, it’s respect enough in them and yourself to face this possible bad scenario with honesty and conviction. That’s being a man. If they can’t admire or recognize that yet, they will.
After all, they are your kids. Have some faith in them. They have it in you, undoubtedly, despite themselves or not. You’re a lucky man. You’re their father.
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