10 Financial Mistakes in Divorce You Don’t Want to Make

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Close up of an eye with a picture of Benjamin Franklin on a dollar bill superimposed over it.The two things that people worry about most in divorce are their money and their kids. Unfortunately, worrying about money doesn’t prevent those same people from making enormous financial mistakes in divorce.

Here is a list of the top financial mistakes people make in divorce. Once you know them, you can (hopefully) avoid making them yourself.

Red word "Budget" with a belt tightening around it.

Top 10 Financial Mistakes in Divorce

1. Not taking the time to do an accurate post-divorce budget BEFORE you settle!

Doing a budget is a hassle. Roughly two-thirds of Americans don’t make (let alone follow!) a budget. But trying to settle your divorce case without making a budget is like trying to drive from Texas to New York without a map. You can do it, but you are probably going to get lost a lot along the way.

In order to know whether you are going to have enough money to survive post-divorce, you have to figure out how much money you will be bringing in and how much money you will be spending once you are on your own. For example, before you fight to keep your house, you have to know whether you can afford to keep your house after divorce. Before you agree to pay for everything for the kids, you’ve got to know what “everything” costs!

Yet, compiling your budget alone isn’t enough. What’s equally important is knowing that your numbers are accurate! If your budget is based on estimates of what you “think” you spend, you may be shocked after your divorce to learn that you need to work three jobs just to survive.

2. Not insisting on getting all of your (and your spouse’s) financial documents.

No one likes to spend days digging up and organizing old financial documents. It is even worse if you don’t happen to be the best record-keeper on the planet. Digging through closets and dresser drawers of disorganized paperwork is definitely not fun. But having that information is absolutely essential if you want to settle your divorce fairly.

There is no way you can accurately divide up your assets if you don’t know what they are. You can’t possibly divide up your credit cards without knowing how much you owe. As painful as gathering financial information may be, when you’re getting a divorce you have no choice. Knowledge isn’t just power. It’s everything.

Nothing causes people to make more divorce money mistakes than not getting the financial documents that show whether their budget and balance sheet are accurate reports of their financial situation or simply creative fiction.

Red sign with the word "Assets" and an arrow pointing down.3. Not getting assets valued.

Getting your house appraised when you are getting a divorce is a hassle. It takes time and costs money. But the only way to really know what your house is worth is either to sell it or get it appraised. If you choose not to do either, that’s fine. Just know that, if you do that, whatever you value your house at may be wildly different from what it is actually worth.

The same thing is true for pensions. Unless you hire an actuary to figure out what the present value of a pension is today, you can’t know what it is really worth.

Dividing assets without knowing what they are worth is almost guaranteed to be a mistake for either you or your spouse (depending upon which one of you ends up with the short end of the stick).

4. Not looking at (and understanding!) all of your financial documents.

It is not enough to get the financial documents that show the state of your family’s finances. You actually have to read them and understand them!

If you are a numbers person, and you geek out when you look at spreadsheets and financial documents, awesome! You are going to have a field day going over the numbers in your divorce.

If going over numbers makes your head spin and your eyes glaze over, all I can say is: You’re going to have to suck it up and learn. Or risk getting screwed. It’s up to you.

Close up of an old briefcase being carried by a lawyer.5. Relying on your lawyer to do everything.

Having a lawyer to help you in your divorce is a wonderful thing. But, contrary to what some lawyers believe, they CAN’T do everything!

Divorce lawyers may be great at giving legal advice in your divorce, but they may not be the best professional to help you analyze your financial documents. If your finances are complicated, if you own multiple businesses, or have lots of different investments, you may need to either consult with a divorce financial planner or hire a divorce attorney who has a strong financial background.

It is also a huge mistake not to carefully review your financial documents yourself. No matter how financially savvy your lawyer is, s/he is not going to be as familiar with your life and your finances as you are! Your lawyer may not be able to spot expenses that don’t make sense or other financial red flags the same way that you can.

6. Not understanding how taxes will affect your support and settlement.

There is no way you can know how much your divorce settlement is really worth without understanding how taxes will affect that settlement.

You may think you are getting $100,000 in your divorce. If that money happens to be sitting in a savings account, then, yes, you may get $100,000. But, if that money is in a retirement account, you will have to pay taxes, and possibly a penalty, when you withdraw it. So that $100,000 will be considerably less once it is in your pocket.

Taxes can also affect how much support you will actually pay or receive. Not understanding whether your support will be taxed or not can cause you to end up with a huge tax bill that you didn’t expect. (Not understanding how the alimony tax law will change in 2019 can be just as devastating too!)

Yellow "Watch Your Step" sign coming out of an open crater.7. Forgetting about the long term.

Negotiating a support agreement that will allow you to live after the divorce is critical. But, unless you are going to be getting support for the rest of your life, you have to plan for the time when your support runs out.

Now is the time to invest in yourself and your own education. If you are unemployed or underemployed, it is time to retool and retrain yourself. You need to put yourself in the best possible position to support yourself at the highest level once your support ends.  You would also be wise to save as much money as you can while you are getting support so that you will have a nest egg to fall back on once your support ends.

If you are the person paying support, your biggest potential mistake is in not locking down the exact terms of support in your divorce judgment. Your long term financial security depends on knowing how long you will have to pay support, whether your support amount is modifiable, and whether support can be extended for any reason. If your judgment is unclear, you may find years later that you end up paying more support for a longer time than you expected.

8. Not thinking about insurance.

Lots of different types of insurance can affect your divorce settlement. Not thinking about insurance before you get a divorce can be a huge mistake.

If you have kids, having life insurance on both you AND your spouse is critical. Why? Well, if you are supporting your kids and you die, what will happen to your kids? If you are receiving support and your spouse dies, how are you going to support your kids alone? You’ve got to think of these things before you get divorced.

Another often overlooked area is health insurance. The cost of health insurance seems to only go up. Not figuring the cost of health insurance into your post-divorce budget can leave you in the hole every month.

9. Sacrificing your own financial security for your children.

We all want the best for our kids. We all want to shield our children as much as possible from the ravages of divorce. But there is a reason that flight attendants tell you to put your own oxygen mask on before you put a mask on your kid.

If you don’t have enough money to survive, your kids won’t survive either. If you’re dipping into your retirement funds to pay for traveling soccer, you’re going to have a bigger problem down the road. Your kids need to understand the value of money. They’re not going to learn that if you lie to them and say everything is fine when you’re on your way to financial ruin.

You are not doing your kids any favors if you negotiate a settlement that requires you and your ex to keep your kids in private school or expensive extracurricular activities if doing so means you can’t pay the mortgage. While no one wants to see their kids standard of living drop after divorce, no one wants to be a financial burden on their kids later in life either. Yet, if you spend your retirement money on your kids’ activities, that could be exactly how you end up.

Exhausted business man who made financial mistakes in divorce, sitting at a table overflowing with wadded up papers with his head in his hands.10. Making settlement decisions out of exhaustion.

Divorce is a marathon, not a sprint. Unfortunately, for most people, the most significant settlement negotiations occur at the end of the case, after you have spent months or years fighting with your spouse.

By the time you get to the end of your divorce, you are tired. You want to be done. So you give in and agree to a settlement just to be able to move on with your life. Sometimes, that works out okay. But other times, it’s a disaster.

There is value in putting your divorce behind you. But settling your divorce on terms that leave you without enough money to survive is a huge financial mistake.


Karen Covy

Karen Covy is a Divorce Coach, Lawyer, Mediator, Author, and Speaker. She coaches people to make hard decisions with confidence, and navigate divorce with dignity.  She speaks and writes about the art and science of making difficult decisions in emotionally-charged circumstances. To connect with Karen and discover how she can help you, CLICK HERE.


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