The Most Common Financial Mistakes People Make During Divorce
One common financial mistake when divorcing is waiting to file for the divorce. Many people, when confronted with the possibility of filing for a divorce, will procrastinate and seek to put off filing as long as possible. While understandable, as divorce is a complex emotional issue, from a financial standpoint, this decision to wait can have an impact on the eventual division of assets. When marital assets are divided during a divorce proceeding, the assets are quantified using the period from the date of marriage through the date of filing. Accordingly, the earlier a party commences an action, the sooner both parties begin to accrue their separate property, meaning once a party files for divorce, any income and funds added to retirement accounts after the date of filing may be considered separate property and not subject to equitable distribution. Similarly, when determining an ex-spouse’s share of one’s pension or retirement account, the Court will apply the Majouskas formula, which calculates the ex-spouse’s share for the duration of the marriage- i.e., the date of marriage till the date of filing. Filing for divorce earlier can help limit the share of your pension or deferred compensation that would be subject to distribution.
Consequently, another financial mistake people can make during a divorce is deciding to deliberately utilize or deplete marital funds during the pendency of the divorce proceeding. While some individuals may be forced to rely on marital assets while the divorce is underway, all should be aware that, as stated above, the division of marital assets, including marital bank accounts, utilizes the amount in the account at the date of filing. If one party continues to draw down on marital funds during a divorce proceeding, any equitable division would deduct the amounts utilized during the pendency from that party’s share of the asset and can very well lead to the party owing funds to the other party if they deplete or utilize more than their share of the marital asset. If a joint bank account has ten thousand dollars in it at the time of filing, then both parties are entitled to five thousand dollars. If one party continues to use the account and depletes the account down to four thousand by the time the divorce is final, that party will be obligated to repay the other party one thousand dollars to ensure that both parties receive their share of the asset plus the remaining balance in the account.
Far and away the most common financial error people going through a divorce tend to make is making financial decisions based on emotions. Divorce can understandably be an incredibly emotional and arduous process for any individual to undergo. Dividing marital assets, potentially selling a marital residence, and determining spousal support amidst this painful tribulation can be extremely overwhelming. It can be tempting to view the division of marital assets and procedure for determining equitable support as a method to “get back” at a spouse. As difficult and as insurmountable a task it may seem, individuals in this situation are better off in the long run if they can find a way to set aside the emotional response and focus on the divorce process as a business decision. The division of marital assets and determining equitable support are financial decisions that will significantly impact each party’s ability to move forward after the marriage. It is often the case that settling a matter will be cheaper in the long run than continuing to litigate in order to “win.” Divorce proceedings are expensive, and dragging on a proceeding to hurt the other side also hurts you as well.
Compromises and settlement discussions, though often painful to swallow, can save an individual money in legal fees, time from ongoing court appearances, and emotional pain from the often draining experience of a divorce proceeding.
This is not intended to be legal advice. You should contact an attorney for advice regarding your specific situation.
Conor Horan is an Associate and practices matrimonial and family law. He can be reached by phone at 845-764-9656 and by email.