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10 Financial Mistakes to Avoid in Your Divorce Settlement

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California couples going through a divorce will have to make a lot of decisions. Many of the choices they will be faced have significant effects on their financial future and security. Parties involved in a California divorce must seek and consider the advice of experienced professionals.

10 Financial Mistakes To Avoid in Your California Divorce Settlement:

1.    Ignoring Your Expenses: Create a realistic, and clear monthly budget. Also, consider how your living expenses may change and come up with fair projections of how your budget would need to change to accommodate your life after divorce.

2.    Assuming that as the Parent with More Custodial Time You Will Keep the Family Home: Decisions made about keeping or not keeping the family home during divorce tend to be emotional. Remember that it may be more important to consider if staying in the house is a viable financial decision. Can you afford it? Will you be able to pay the mortgage? Will you have the funds to cover property taxes? Will you be able to pay for necessary maintenance?

3.    Assuming an Equal Division of Property is a Fair Division of Property: Be aware that an asset’s value is not necessarily determined or limited by its current market value. Make sure you consider an asset’s potential to generate income during the divorce settlement negotiations.

4.    Focusing Too Intently on Individual Financial Issues: If you look at each asset or source of income as a separate issue, you miss how they interact to create an overall financial situation. When negotiating your divorce settlement, look at the big picture. If you do, you won’t miss the interaction of taxes, capital gains, investment losses, inflation, timing issues, etc. To create a fair settlement, you need a comprehensive picture of your finances.

5.    Failing to Obtain Insurance to Protect Spousal Support and Child Support Payments: Collecting spousal support or child support is only possible if the other party can make the payment. Secure any spousal support or child support obligations by requesting your spouse obtain good disability and life insurance policies (or modify their existing policies) to ensure that equivalent payment would continue in the event of their untimely death or disability.

6.    Failing to Understand Liability for Unsecured Debt: In most cases, unsecured debt refers to credit card balances. If incurred during the marriage, it’s probably considered a joint liability by the California divorce court no matter whose name is on the card or who made the charges. These debts are typically divided during the division of assets but do not assume that the credit card companies care about who was deemed responsible for the debts. They will still seek payment from both parties. The best-case scenario is to pay off all unsecured debt before the final divorce decree.  

7.    Failing to Correctly Evaluate a Defined Benefit Pension Plan: The defined benefit plan or DBP is a true pension plan. It is both controlled and funded by the employer. During retirement, it pays a monthly income. Employees must wait until retirement to receive payments, but the DBP has value now. The non-employee spouse is entitled to a share of its value. Hire an actuary to calculate the present-day value of any DBP held by your spouse during a California divorce.

8.    Failing to Get a Qualified Domestic Relations Order (QDRO) in Place: A QDRO is a legal document that outlines how you and your spouse have divided a defined contribution plan (401k, etc.) or pension plan. The document orders the plan administrator to pay the non-employee spouse their agreed-upon portion. Without a valid QDRO in place, the plan administrator cannot make payments to the non-employee spouse. To avoid losing essential pension rights, make sure there is a QDRO in place as part of your divorce settlement.

9.    Indulging in Unrealistic Investment Return Expectations: In many cases, one spouse may attempt to convince the other to agree to a particular settlement arguing that certain assets are going to increase in value. Get a professional opinion. The investment may not grow at all. Don’t agree to a settlement based on unfounded estimates of future value.

10. Not Considering Long-Term Financial Issues: Focusing only on the immediate situation can be an essential issue when negotiating your California divorce settlement. Always remember that the most crucial aspect if long-term financial security. Try to consider your financial decisions in terms of what things will look like in 10 or 20 years so you can attempt to prepare for or avoid long-term financial consequences.

If you need assistance negotiating the terms of your California divorce settlement, the experienced divorce attorneys at The Maggio Law Firm are ready to assist you. Get in touch today so we can be your advocate, protecting your financial future so you can move forward after divorce.



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