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Financial caveats to consider when facing divorce

The divorce process naturally requires financial decisions that will affect the lives of divorcing parties for many years after a divorce. Thoughtful and knowledgeable consideration regarding financial matters is of utmost importance.

Unfortunately, sometimes emotions get in the way and can cloud the decision-making process. Below you will find six suggestions to help you avoid common financial pitfalls that could have serious consequences to your financial wellbeing after divorce.

  1. Do not try to exact revenge on a former spouse through the divorce process. By doing so, one may unintentionally end up harming themselves financially. Legal and professional fees may accrue substantially when an extensive amount of time is spent trying to find ways to impose vengeance on the other party.
  2. Cancel all joint credit accounts. This can be accomplished by paying off balances or transferring balances to individual accounts. It may even be a good idea to consider monitoring credit history through the use of a credit reporting company.
  3. Only the parties to a divorce decree will be legally bound by its stipulations. Lenders are not subject to a divorce decree. They can hold the owner of an account liable, regardless of whether the liability has been transferred to the other party as part of a divorce decree. It may be possible to limit liability and protect credit ratings by approaching lenders prior to a divorce decree becoming finalized.
  4. Divorcing individuals should make all financial decisions with the future in mind. Planning on a future budget will help ensure that needs are met subsequent to a divorce decree. Although, in some instances it may be possible to renegotiate a divorce decree if situations have changed, this can be difficult and could even be impossible.
  5. It may be difficult, but try not to get emotionally attached to assets. Doing so may cloud judgment as to an asset's true value. For example, although an asset, such as a home, may have sentimental value, it may be very hard to valuate. When taking into account market fluctuation, maintenance expenses and taxes, a home's true value may be significantly less than originally thought.
  6. Do not give up. While divorce can be very stressful, working through financial matters during the divorce process will prove to have benefits far into the future.

Of course, divorce is rarely a simple financial equation. Emotions are likely a key factor in your decision to divorce, so it is not easy to separate the decisions involved in that divorce from your emotions. This is why it is so important to consult with an experienced divorce lawyer who can help you make smart decisions that will impact your future financial stability.

Source: Fox Business News, "6 Financial Mistakes to Avoid in Divorce," Teresa Bitler, 21 Mar 2011

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