The Top 5 Mistakes Couples Make in Divorce


Tiger Woods finalized his divorce settlement with former Swedish swimsuit model Elin Nordegren this week, coughing up a rumored $100 million to ensure his wife won’t talk publicly about the sordid events leading up to the split. In addition to the six-figure sum, Nordegren reportedly will get several homes, including an $80 million mansion in Jupiter, Fla.

Now that’s nowhere near the largest celebrity settlement – media titan Rupert Murdoch still holds that title, paying his former wife Anna $1.7 billion when the couple split in 1999. But no matter how large a settlement may be, divorcing couples often trip themselves up by focusing solely on divvying up cash and not looking ahead to what might make more financial sense down the road.

Here are the Top 5 mistakes couples make in divorce:

Rushing to Court. Lawyers aren’t cheap . It can cost each one of you between $200 to $300 an hour to hire a divorce attorney -- double that for attorneys in high-net-worth divorce cases. Couples who rush to bring in their own legal counsel to handle the settlement will have fewer assets to worry about splitting up, because they’ll have already handed over a large chunk of it to their attorneys. Instead, divorcing couples should consider mediation, which can cost half as much as hiring attorneys.

Focusing on Alimony. Typically, spouse will argue the for the biggest alimony checks they can get, when the real focus should be on child support. Alimony is tax deductible for the person writing the check, but it’s counted as income for the person cashing it. Child support, on the other hand, is tax free for the spouse receiving it.

Keeping the Home. If rumors are true, Nordegren walked away with a small fortune in real estate, in addition to a $100 million cash settlement. But demanding to keep the marital home is one of the biggest mistakes you can make in divorce. While real-estate often makes up the largest chunk of a couple’s net worth, it’s an extremely illiquid asset that comes with hefty annual maintenance costs.  Before you demand to keep your home, calculate the actual costs of a monthly mortgage, taxes, utilities, and maintenance and upkeep. In many cases, it makes the most sense to sell the home and split the proceeds.

Messing Up the Paperwork. You’d think figuring out how to equitably split up retirement assets would be the most difficult part of handling a divorce settlement, but the biggest mistakes couples often make is just failing to get the paperwork straight. When splitting retirement savings accounts, you typically need to file a qualified domestic-relations order (or QDRO). The form spells out to the asset-management company who gets what money held in a pension or retirement savings account. Without the properly prepared QDRO, filed in a timely manner, the plan sponsors won't divide the accounts as set out in the divorce settlement and a spouse’s rights to the funds may be in jeopardy. The plan participant also may get slapped with early-withdrawal penalties and have to pay income tax.

Failing to Insure the Outcome. No matter what the financial settlement, there’s no guarantee a spouse will receive what was promised if the ex-spouse were to die unexpectedly. If you will be relying on alimony or child support payments, it makes financial sense to take out a life insurance policy on your ex. The amount insured should cover monthly payments, as well as larger financial responsibilities, such as college tuition.


Most Popular

Recommended Reading

 
$vAR$