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3 financial mistakes divorcing people make

On Behalf of | Dec 30, 2021 | Divorce

Alabama is an equitable distribution state, which means that a divorcing couple’s assets will be divided in a way that the court decides is “fair.” If you can negotiate property division decisions outside of court, a judge may sign off on this agreement. However, it’s important to be aware of some of the biggest financial mistakes that are made during the process.

Mistake #1: Thinking only about current value

One mistake that divorcing spouses often make is only thinking about their assets in terms of what they are valued at right now. Certain assets, like businesses, real estate and stocks, may grow in value over time. These assets may also decline in value after the divorce. A typical example of an asset that is likely to decline in value is a new car.

During property division negotiations, a car and a stock portfolio may technically have the same value. However, you may want to consider that one of these assets is more likely to be worth more five years from now than the other.

Mistake #2: Not considering tax implications

The tax implications of owning certain marital assets are important to consider. For example, a stock may have a certain value before it is sold, but that value goes down when you consider the tax implications of selling the stock. There are also tax implications for withdrawing from a retirement account too early, which a lot of spouses do during divorce settlements.

Mistake #3: Forgetting to have the house appraised

One of the most common mistakes divorcing couples make is not having the family house reappraised at the time of the divorce. If one spouse is remaining in the home, they will likely have to refinance it in order to get the other spouse’s name off of the mortgage. It’s important to have the home appraised at this point, since the homeowner will be responsible for capital gains taxes in the event of a future sale.

Every divorce has unique issues

Every divorcing couple has their own unique challenges when it comes to property division issues. However, they can benefit from getting prepared early, doing research and organizing their financial records.


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