The Top 9 Major Money Mistakes Men Make In Divorce

By Jennifer Paine

Attorney, Cordell & Cordell

financial advice divorceThe “simple and cheap divorce” is a myth.

The “cheap divorce” really refers to two divorces: the cost-effective divorce and the avoided-costs divorce.

Unfortunately, in pursuit of the cost-effective divorce, and under the mistaken belief that their wives are paying less and have, therefore, somehow “won the case,” too many men make major mistakes when it comes to their money – the very thing they are trying to avoid.

Make these 9 financial mistakes and your “simple and cheap divorce” will cost you a fortune:

1. She has to pay half the debt, right?

Most jurisdictions apply a rule called “equitable distribution” or “equitable division” to divide assets and debt. The rule sounds an awful lot like “equal” division, and, sometimes, it is.

For example, retirement accounts (usually, the husband’s) that accrued during the marriage are divided equally between ex-spouses. However, the same is not true for debt.

“Equitable” really means, do what is fair, and, for debt, that usually means the spouse who earns more pays more.

Do not go racking up a credit card bill with the assumption that your wife will be responsible for one-half the balance. If she earns less than you, she won’t.

 

2. I received the inheritance. Not us.

If you receive an inheritance, the best thing to do is title the property in your name only, deposit the money into an account bearing your name only, and do nothing but leave it alone – until you are safely divorced.

Why?

Because even though the inheritance is in your name and came from your parents, if you commingle it with marital property then your wife may have a claim to it.

Did you use the inheritance during the marriage to remodel the marital home? Did you put it in a joint bank account? If so, then that inheritance is not all yours – it’s your wife’s, too.

 

3. But this car has always been mine.

It’s painful, but most guys’ precious belongings become prime targets in a property dispute. Some guys will buy a toy – an old car to fix-up, a train collection to repair – as a hobby and diversion during a divorce.

The problem is, those toys are property, too. Anything you do that causes the property to appreciate is work you are doing for your spouse, too.

The best thing to do is leave all your precious belongings alone – don’t go fixing up that car or collection because the more valuable it is, the more likely you will have to sell it, give it to your wife or fork over some cash to buy her out of “her share.”

 

4. I’ll keep the bank account, she gets the retirement.

A bank account and a retirement account may have the same balance on paper, but that does not mean they have the same value.

In the pursuit of a quick settlement with liquid assets, and hoping to avoid an expert’s fees, some guys will swap a bank account for a retirement account.

The problem is $50,000 in the bank now is not the same as $50,000 in a retirement account now.

For one thing, to the extent you can access the retirement account, usually you must pay penalties and taxes for making a withdrawal. For another, there may be hidden costs, such as a loan in repay-status, tied to that account.

On the other hand, a future stream of income usually has more present day value than cash.

It’s worth a meeting with a CPA or other specialist to have those accounts valued.

 

5. She can have the stuff in the house.

The household furnishings and holiday decorations may seem insignificant to you, but agreeing to give your wife “all the home contents” or “whatever she wants out of the house” is like writing a blank check – for thousands of dollars.

Think about it. The computers, televisions, china, entertainment systems, books, etc., all have a value. And that value really adds up.

Don’t be afraid to have your home contents appraised so the value is taken into account in your overall property division. Otherwise, the divorce court is likely to assign no value or a nominal value to those contents.

Obtain the appraisal before you make the argument to your wife’s attorney or in court, though. Most judges, and even some attorneys, will dismiss an argument that all of that stuff has value until they have an appraisal in hand.

 

6. I gave her the house so she’s responsible for the mortgage.

Your wife might want the house, and she might be able to afford it, but awarding it to her does not release your liability to the mortgage company.

If she misses a payment, the company will pursue you for it. That means calls, collections letters and, possibly, a lawsuit.

Most guys, while fearful that this will happen, do nothing in their decree to protect themselves if it does.

You should require her to refinance the mortgage and provide you with proof of her attempts on a regular basis until she does so. Also include enforcement language to back it up so you will not be held liable.

 

7. I refuse to pay alimony.

Alimony is not all that bad – really. Many guys refuse to pay alimony because they think writing a check every month for years to an ex is tantamount to reliving the divorce every month.

However, alimony is tax deductible from income to you and taxable as income to your ex-wife. You should think of it as a tax planning measure.

If you have a choice of paying $5,000 a year as a “property settlement,” which is not deductible to you, and $5,000 a year as spousal support, which is deductible, then go for it.

Just be sure the support amount is not modifiable upward; otherwise, your ex could reap the benefit of your pay raises post-divorce.

 

8. She’s begging for more financial support, so I’ll give her a little now.

If you pay child support, you will get the sob story from your ex-wife: “I haven’t received the check, I need extra money for clothes, etc.”

It’s tempting to make a direct payment, lest you leave a kid without food to eat and a bed to sleep on.

But this is a trap. Make a direct payment, and, in most jurisdictions, you will not receive a credit toward the child support you should have paid unless the paying parent keeps a copy of the payment (no cash, please!) and a receipt, and both parents agree the payment was intended to replace that support.

In many states, the direct payment is considered a gift – no ifs, ands or ors about it. That means you must pay the same support twice.

 

9. I don’t need a CPA.

Too many men would rather save costs by figuring out tax consequences on their own, maybe with one of those programs you can buy at the grocery store, or, worse yet, ignoring them altogether.

However, a divorce is not just about dividing property, venting over who cheated, and making provisions for child welfare. It is a complex transaction that is rampant with tax consequences.

What can I deduct? How can I avoid an assessment for property awarded to me? What happens to investments? What filing status do we use? Who claims the children as dependents? What if we owe taxes?

You can make agreements in your divorce decree to answer all of these questions. Spend some time with a CPA, in addition to your attorney, to strategize.

But cheap out, and you will make a major money mistake.

To schedule an appointment with a men’s divorce lawyer, please contact Cordell & Cordell.

Read related article: “Responsibility For The Marital Home Mortgage

 

Jennifer M. Paine is an Associate Attorney in the Detroit, Michigan office of Cordell & Cordell. She is licensed to practice in Michigan, and has been admitted pro hac vice in Illinois, Ohio, and the United States Court of Federal Claims.

Ms. Paine received her BA in English and Mathematics from Albion College and graduated Summa Cum Laude. She received her Juris Doctorate from MSU College of Law and graduated Summa Cum Laude.

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