Saturday, August 16, 2008

How to Avoid Common Divorce Mistakes

Step1Take a step back from quickly rushing to divorce court. When you rush to end the marriage, it can often leave unfinished business, especially business related to finances, that can come back to haunt you during the actual proceedings or shortly afterwards.
Step2Be prepared. Choosing to pay a divorce attorney can cause more financial strain than it may be worth. Remember, divorce attorneys charge over inflated hourly rates, which you can avoid by doing some of the work yourself. You can be better prepared by making sure to have copies of all necessary paperwork the attorney will need to begin the proceedings. Gather copies of financial and legal documents dealing with assets, prior tax returns, bank account statements and an accurate list of outstanding debts. This can essential save you time and hundreds of dollars.
Step3Seek the counsel of a financial planner or accountant. Do not jump and eagerly agree to split everything down the middle, because you may be cheating yourself out of future finances that are rightfully owed. It is important to take into consideration immediate and long-term tax ramifications of all belongings, which will help note true worth.
Step4Seriously consider whether it is in your best interest to ask for the house. Many spouses, women, eagerly want to keep the house, but do not think of the long term financial obligation they are leaping into. All to often, the wife asks for the house and has to give up so much more in order to win it in the settlement that she walks away with a house and little cash flow to maintain it. When and if she cannot maintain the house after the divorce, she will be forced to sell and only be eligible for $250,000 tax-free gain, which can hurt her in the long run. It may be better to sell before the divorce and get a larger tax-free gain and eliminate future hardships.
Step5Avoid rushing to court. This can cause the couple more hardship and stress, as well as, strain on their wallets. Divorce attorneys and divorce court proceedings can cost a pretty penny, and at a time when spending should be more frugal. A better way to approach divorce is to go through mediation. This will have the couple amicably negotiate an agreement both can live with. Of course, this will only work well with a couple that can be civil and mature about the situation, but it can save them a great deal of money to do it this way.
Step6Attempt to untangle assets. Along the way you probably built up credit jointly. It is in both parties interest that they free themselves from the tangle as much as they can before the go through the divorce proceedings. It is time to independently establish credit by opening up a credit card in your own name. The divorce may get ugly and spiteful, which may have one party running up existing joint credit cards, so, if you have your own, you can rebuild your credit score easily.
Step7Pay off all or as many of the marital obligations before you enact the divorce. Waiting to have marital debt and obligation settled as part of the divorce settlement can lead to trouble later on when and if one member fails to honor what they agreed upon in the divorce. This may cause creditors to chase after you to get payment. Unfortunately, this may require you to liquidate assets like the house.

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