Seven Financial Mistake You Can Make During Your Divorce

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The seven worst financial mistakes you can make during your divorce.

1)  Making a major purchase - Perhaps a new house?  A new car?  These are purchases that may impact your situation negatively.  For example.  You are currently living in a $300,000 house.  You purchase a $200,000 house.  Keep in mind, that your combined income with you and your spouse paid for the $300,000 house.  You just added a significant expense.

2)  Selling highly appreciated stock for cash flow – Right now it might seem like a good idea.  You think, “I can always put this money back once things settle.  And I need the money now to pay attorneys and for cash flow”.  With a significant capital gain, and no losses to offset, your tax bill may be quite high.

3)  Not taking into account the tax implications of spousal support – So you’ve got an agreement in place, and your spouse is paying you alimony.  Your spouse gets to take those alimony payments as a reduction in his or her taxable income.  Guess what that means?  You now have to pay taxes on that income.  This can be especially troublesome if you haven’t planned correctly.  Make sure you account for this, either by setting up a separate account that will pay the taxes, or by adjusting your payroll deductions.

4)  You don’t withhold taxes from the 401k distribution - Ok, so you need some money to pay off bills (attorney, credit cards, etc.) that you accumulated during this process.  So when the time comes to receive a distribution from your spouse’s 401k, you cash out some (or ALL!) and do not have taxes withheld.  Once again, when Uncle Sam comes knocking, you will owe a large tax bill.

5)  Assuming “getting the house” is the best deal - You’ve all seen the tabloids and the newspapers looking at the high profile divorces.  People will say, “Well, she got the house, so she made out like a bandit”.  Unfortunately, not all assets are created equally.  The “house”, which in this case is the marital home, may be a money pit, may have negative equity (especially in this economy), or may just be too expensive for one spouse to maintain.  Make sure you consider all of the options, including selling the house, before you make this decision.

6)  Quitting your job so you don’t have to pay alimony – While this might seem like a good idea, all it is going to do is get you in trouble with your spouse and the courts.  You will still be required to pay alimony.  You don’t get a free pass here.  What this will do is make you look less sympathetic.

7)  Not planning – The biggest mistake you can make is not actually planning.  Divorce is a confusing time, and you often are not thinking rationally.  A good plan will prevent a lot of things from going awry and ruining your financial situation.  Stop, take a deep breath and consult someone who will help you to navigate the complex financial issues that are associated with your divorce.

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Financial Reform Redux, Part Deux

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I’ve written about the financial reform before, but I though it was important to bring it up again now that it has been signed into law.  There are some good things in this bill.  There are also some things that will hurt small business in both the short run and long run.  Consumer protections, for example, are good.  But hardships and additional costs to small businesses is not.  Now, it’s possible I’m overreacting, but when you jam different provisions of law into a tome the size of Texas, I think most people will agree that it is not efficient, and not a good way to regulate the financial industry.

I would like to touch up on one item that I think is good though, which I will expand upon in another blog post.  The rules requiring Defined Contribution plans (that’s your 401k) to have either an independent advisor review the plan, or a computer program.  Now, I’m not thrilled on the computer program, but these programs are a lot smarter than they used to be, so I’ll reserve a little judgment.

One thing that is for sure with the new Financial bill:  We’ll be seeing it’s effects for years to come.

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Facts About Divorce Fiction(al Stories)

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Part I: Magical Money Thinking

 

In Ray Romano’s new TV series, Men of a Certain Age, everybody doesn’t love Joe – the recently divorced father that he plays. But Joe loves his kids and vice-versa, so he wants his shared-custody time with them to be in a real home, and not the one-big-room “divorce-hotel” suite that he’s renting.

Unfortunately, Joe really can’t afford the foreclosure “special” that his real-estate agent shows him, with his kids in tow – at least not if he has to win a bidding war with other eager buyers. Nevertheless, spurred by divorce guilt when they obviously love the place, he suffers a gambling-problem relapse and puts 25 Large on a basketball game to increase his down payment to the amount his agent says will win him the deal.

I won’t spoil the suspense by telling you if Joe wins or loses; besides, that’s not the point. Instead, I’ll suggest that it doesn’t take a gambling problem to disregard typically strained-finance post-divorce reality.  Instead, it  takes only the common, understandable but horribly misguided desire to assuage emotional guilt about the kids by relying on magical money thinking.  But spending more than they can afford only adds to divorced parents’  often  dangerously high stress.  Ultimately, that’s bound to  prove much more harmful to kids than the short-lived questionable benefit of overspending to reassure kids (and perhaps themselves) that their world isn’t falling apart.

That’s why all parents who REALLY love their kids  — despite how much they no longer love their spouses –  will strive for a financially equitable settlement that minimizes the inadequacy that either ex-spouse might otherwise end up feeling about providing more than a bare-bones existence for the kids.  Otherwise, the vindictive spouse will require just as much magical thinking about how putting winning first didn’t hurt the kids as the losing spouse will require to conjure up a way to make ends meet.

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Financial Website for Kids

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Rich Kids, Smart Kid is a fun website to teach children some basics. It even has a section for teachers involving the games.

It has four games to play and has teacher’s instructions for each game. It’s fun and educational.

Kids’ Finance is a fun website too with educational tools for children. There are word searches and matching games as well as history on the US money bills.

Do you have any websites that your children like to visit?

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