Divorce is by nature a messy process, and it's common to make mistakes.
Some are small (forgetting that one dinky investing account), and some are big (not addressing a major issue like taxes thoroughly in your decree).
If you are wrapping up a divorce, you may find that mistakes were made.
Below I'll outline the most common mistakes I see and guide you in how to address them.
Not Reading Your Divorce Decree
By the time your decree was finally drafted, you may have been so sick of the process that you just signed it without reading it. Granted, your attorney will have reviewed it - but they are human, and they can err.
If you haven't read your decree, sit down right now, pen in hand, and read it.
Underline or highlight anything you don't understand. Then get in touch with your attorney and start asking questions.
Your Divorce Decree is a legally binding document, and you want to be sure you understand all your rights and responsibilities.
You also want to be sure that you receive all assets due to you, and the best way to make sure of this is to read the document that enshrined your settlement.
Failing to Understand Your Divorce Decree (And Not Speaking Up)
Maybe you read your decree, but it was written in such a way that it was hard to understand…so you signed it anyway. The fix is the same.
Grab a pen, grab your decree, read it, and mark all the parts you don't understand. Then, call your attorney and ask your questions.
Once again, your Divorce Decree is a legally binding document.
It enshrines your settlement agreement, and if there are sections you don't understand, you may find yourself in violation of court order, paying taxes you don't owe, or losing out on assets that should be yours.
Failing to Consider Taxes in Your Settlement Agreement
Speaking of taxes, if you didn't consider the tax consequences of your settlement agreement, you need to do some damage control.
What do I mean?
Let's say you are the younger spouse, who's still working but earning less than your ex-spouse. Maybe you want to make a major purchase down the road like a house, but you were awarded only retirement assets.
Those assets can't be touched without triggering penalties until you reach age 59½. So, you may be stuck either putting your dreams on hold or paying penalties on top of income taxes to get at the money you need.
Or, say you were awarded mostly non-retirement assets, but you don't need to access them because you are still working. Let's also say that your ex-spouse had a very different investment style from you, and now you own investments that don't suit you at all. You may be stuck with a big capital gains tax bill if you end up overhauling those investments to fit you better.
What to do?
Hire a professional to help you navigate these challenges.
While not insurmountable, you'll likely need the input of an expert to get where you want to go with as little damage as possible. You might engage a CPA, CERTIFIED FINANCIAL PLANNER™ Professional, or Certified Divorce Financial Analyst™.
These are all experts who can help you make sound decisions in a tax-aware manner.
Not Implementing Your Decree in a Timely Fashion
Fatigue strikes again! I sometimes have clients walk through my door with Divorce Decrees that are old enough to be walking on their own, but that they haven't yet implemented.
Don't let this be you!
It is vital that you implement your decree as soon as possible once the ink on the judge's signature dries.
Why?
Because failing to act timely may mean you don't get the assets you were awarded.
Say you were awarded an investing account but never had it re-titled. Say that your ex-spouse, seeing your error, moves money out of that account and puts it somewhere you can't see it.
If you want that money, you're going to have to take them back to court.
If you've failed to implement your decree so far, don't delay any further.
Read it, mark it up, and get started.
If you aren't sure how to implement, call your attorney and ask.
You can also hire a professional like a Certified Divorce Financial Analyst to guide your implementation.
An experienced CDFA will have guided multiple people through the process, and they can help you wade through the sea of paperwork you may be facing.
Failing to Plan for Your Post-Divorce Life
If the process was long, the divorce bitter, and your ability to cope with the stress limited, chances are you had trouble seeing beyond the finish line.
This is a key error.
One of the few silver linings of divorce is the opportunity to start fresh and move forward in a positive direction. But you can't do that if you never looked that far in advance.
The fix here is multi-pronged.
First, dream a little bit. What did you never get to do that you always wanted to do? What was missing in your married life that you might be able to add to your single life? What goals are really important to you?
Next, consider whether you can reach those goals on your own.
If you can, make a plan to get there, and get started implementing that plan.
If you aren't sure, get the help you need. That help might come from a therapist, a fitness trainer, a financial coach, a Financial Advisor who works with newly divorced people, or any other person who can help you get from Point A to Point B.
I've helped many people navigate their post-divorce lives.
With a bit of work and determination, most go on to find a great deal of joy, comfort, and fulfillment.
Their divorce becomes a distant memory, and they turn around one day to realize that even though their divorce wasn't fun, it was also not the sole defining event of their lives.
Trust me, the best is yet to come.
Baird does not provide tax or legal advice. Please consult your legal or tax professional for specific information. While Baird does not offer tax or legal advice, our Financial Advisors regularly work with clients' attorneys and tax professionals to help ensure that all phases of wealth management are addressed.
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