Going through a divorce can be an emotionally difficult situation. Dealing with financial and legal decisions makes it even harder.
But the choices you make during this time can have a long-term impact on your financial future, especially if you and your spouse combined your finances.
Financial planner Mari Adam of Mercer Advisors shared some of the biggest financial mistakes people — and in her experience, women especially — should avoid if you’re going through a divorce.
1. Keeping a house you can’t afford
Keeping the shared house is one of the most common mistakes people make, Adam says.
You may have an emotional attachment to your home, and that’s understandable. The problem is, it’s probably one of the biggest expenses you have, and it gets expensive fast when there’s one income paying the bills instead of two.
“If you keep that house and it is a bigger or a more expensive house, it could be consuming 60% of your income, and what is left is very simply, just not enough,” Adam says.
If keeping your home is something you want to do, you need to consider its full cost, including things like the mortgage, property taxes, maintenance, or condo fees. Adam recommends consulting with a mortgage broker or even a real estate attorney before coming to any final decisions about the property in question.
2. Taking the wrong assets
If you’ve been married more than a few years, you and your ex-spouse may have to divide up assets including savings accounts, retirement accounts, and investments. To decide which assets are right for you, consider your needs and the tax implications of each asset.
Assets such as brokerage accounts, retirement accounts, and properties are taxed differently and yield their returns in different ways.
For example, if you need immediate income and you’re still young, a retirement account may not be the best option because it will have early withdrawal penalties if money is pulled from it before retirement. On the other hand, some assets require your time and finances, such as a property that needs repairs or regular maintenance.
Assets such as stocks, bonds, and ETFs can yield immediate income if they are sold or pay dividends. However, you’ll need to be prepared to understand how and when these options are taxed.
Depending on your age and your needs, one asset may be better suited than another. If you don’t feel confident enough in your ability to decide, Adam recommends seeking expert advice from a certified financial planner before negotiating terms or making any final decisions.
3. Assuming alimony will never end
It’s not uncommon for one partner to give up their independent income once they get married or have kids. But it’s important to understand your options in the event of a divorce.
Alimony is the series of financial payments a person may be required to make to their ex-spouse during separation or after a divorce. It’s different from child support. Whether a spouse will be entitled to alimony payments, and for how long, is something determined on a case-by-case basis and varies depending on the type of agreement or the terms.
Depending on the type of alimony, it may not necessarily last for the rest of your life. Under certain circumstances, such as the loss of an ex-spouse’s income, it could be ended sooner than expected.
“You need to be as financially independent as possible, as soon as possible,” Adam says.
She recommends preparing yourself to go back to work, even if it’s part-time. Working with a career coach will help you find your strengths, and figure out what jobs may be a good fit for you. Also, start putting money aside as soon as possible — even just a little at a time — so that you can build up an emergency fund in the event your situation does change and you need time to get back on your feet.
4. Not scaling back on your cost of living
When two people are no longer sharing expenses, such as rent or a mortgage, things get more expensive. Be prepared to scale back on what you’re spending because you may have to start budgeting for costs that were previously shared.
“If you take household income and divide it in two, both of you are going to be living at a lower level. It’s very hard for two people who split up to keep the same style of life unless they’ve got tons of money,” Adam says.
Adam recommends figuring out ways of cutting down your budget. Picking an affordable vehicle over a luxury one, or finding a more affordable place to live might sound…