Seven Financial Mistakes to Avoid in Divorce

A woman sitting on her sofa looks regretful as she looks off to the side.

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Divorce is a significant life transition that can bring emotional, physical and financial challenges. Before going into a divorce, it’s important to be mindful of the most common financial pitfalls along the way. Being mindful of these mistakes can help you set the foundation for a more stable and successful post-divorce life.

As a CERTIFIED FINANCIAL PLANNER™ professional and Certified Divorce Financial Analyst® practitioner, I've witnessed many common financial mistakes that people make during divorce proceedings. Here are seven of the most frequent and impactful errors to avoid:

1. Overlooking hidden assets

In many marriages, one spouse handles most financial responsibilities, leaving the other unaware of certain accounts or assets. Failing to uncover all marital assets — such as hidden bank accounts, retirement plans or real estate — can lead to an unfair settlement. A divorce involving a business complicates matters further.

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Ensure you have a comprehensive list of assets and gather key documents — bank statements, retirement and investment accounts, life insurance policies, property deeds and incorporation documents if a business is involved. If necessary, hire a forensic accountant to help locate anything that may have been overlooked.

2. Forgetting about taxes

Not all assets are created equal, especially when it comes to taxes. Withdrawing funds from retirement accounts like a 401(k), IRA or pension can lead to large tax bills and penalties, while selling a home may trigger capital gains taxes. Also, know how alimony and child support are taxed when negotiating an agreement.

Before finalizing the division of assets, consult a tax professional or financial adviser to understand the tax implications of your decisions. Remember, unless you finalize your divorce on the last day of the year, you will need to file taxes for the previous year with your spouse.

3. Not budgeting for your new status

Post-divorce financial planning is essential, especially if you're transitioning from a dual-income household to a single income. Many people underestimate the costs of maintaining their lifestyle, including housing, utilities, health care and child support. Also, consider the unpaid labor you relied on from your spouse and how taking on those responsibilities — or outsourcing them — could affect your finances. Create a detailed budget for your new life and incorporate these expenses into your settlement negotiations.

4. Keeping the family home without considering the costs

While keeping the family home might feel like an emotional necessity, it can become a financial burden. Consider whether you can afford the mortgage, property taxes and maintenance costs on your own. If there’s a mortgage, one party may be able to assume it, keeping the same loan terms and interest rate. However, if the loan must be refinanced, you could face higher interest rates or payments. Often, selling the home and splitting the proceeds can provide a cleaner financial break and reduce future stress.

5. Failing to think long-term about child support

Divorces often focus on dividing assets and ensuring short-term stability, but child support is a long-term commitment. Children’s needs evolve, and what a child requires at age 5 may differ greatly from their needs at 15 or 18. From school supplies to extracurricular activities and future college expenses, these costs tend to increase over time. Additionally, consider health care costs, inflation and potential lifestyle changes.

Addressing how child support will adjust for inflation, educational milestones and evolving needs can help create a sustainable financial arrangement and avoid contentious renegotiations in the future.

6. Not seeking professional advice

Divorce is a major financial transaction that can significantly impact your future. Working with a team of solid financial specialists, including a competent attorney who is committed to your case, a financial adviser, CPA, an insurance agent or broker and even a mental health professional, can help ensure you’re making informed decisions. Having professional guidance during the process can help protect you from costly mistakes and help set you up for financial stability after the divorce.

7. Thinking the divorce is complete once the papers are signed

The financial responsibilities don’t end once the divorce papers are signed. It's essential to update all legal and financial documents to reflect your new status. Make sure to revise the beneficiary designations on your financial accounts and remove your ex-spouse where necessary. Consult with an estate planning attorney to update your will, trust, power of attorney and health care directive, ensuring that your ex isn’t unexpectedly left with decision-making power or an inheritance.

This period also provides an opportunity to reset your financial goals and create a budget that aligns with your new life. Think of it as a fresh start to build a solid financial foundation for the future.

Embrace your financial fresh start

Divorce is undeniably challenging, but by steering clear of common financial pitfalls, you can help protect your future and move forward with confidence. The process is rarely smooth and can sometimes take unexpected turns, but staying informed and organized and setting realistic expectations will help you stay on track. Be prepared for a journey that may be longer and more emotionally taxing than anticipated, but also remember to be patient with yourself — this too shall pass.

While you can't control your former spouse’s behavior, you have the power to approach negotiations with a clear mind and your best self. Doing so will help you stay level-headed and make decisions you’ll feel proud of in the years to come.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Julia Pham joined Halbert Hargrove as a Wealth Adviser in 2015. Her role includes encouraging HH clients to explore and fine-tune their aspirations — and working with them to create a road map to attain the goals that matter to them. Julia has worked in financial services since 2007. Julia earned a Bachelor of Arts degree cum laude in Economics and Sociology, and an MBA, both from the University of California at Irvine.