7 financial mistakes people make during divorce

Posted by Manisha Thakor.
Divorce can be hard, but if you steer clear of these common pitfalls, you may avoid financial hardship in the long run.
  • Not seeking professional financial advice. I’ve mentioned “divorce brain” before; how it temporarily clouds judgment (I know this from first-hand experience!). By recognizing the phenomenon, you can better avoid rash decisions—like which attorney to use. Rather than picking someone who merely feels right, employ more practical criteria, like whether you want someone who charges by the hour or works on a retainer, or practices collaborative divorce. Also, consider using a Certified Divorce Financial Analyst (CDFA), who can help you and your attorney understand the long-term effects of dividing assets.
  • Holding onto the house. Keeping the family home may feel like a win, especially if you’re looking to cause minimal disruption to your children. We tend to equate familiarity with safety; even though it feels like your safe space, holding onto your home during a divorce may cause you financial harm in the long run. Remember, a house is not necessarily the most valuable asset owned by a couple, in terms of long-term growth potential. There are ongoing expenses to consider, such as property tax and maintenance.
  • Focusing on equitable division (rather than quality) of assets. $100,000 in a traditional IRA vs. a Roth IRA is a classic example of two accounts that, on the face of it, appear to be of equal value but are not. $1 in a Roth is worth only 60-80 cents in a traditional IRA, since the latter is taxable. A financial advisor can better help you and your attorney evaluate the quality of marital assets.
  • Not adjusting lifestyle expectations. Splurging on designer shoes and taking an expensive vacation may make you feel better in the short term. But living off of one income when you’re used to two requires a readjustment of expectations, especially if your spouse was the breadwinner. In your new economic paradigm, that country club membership may no longer be feasible, and you may have to trade in your luxury car for a less glamorous automobile.
  • Overspending on kids. No matter how good it feels to spend money on the innocents caught in the crossfire of your divorce, spoiling them sends out the wrong message. Just as scientific studies indicate the overuse of antibiotic hand sanitizers may cause an increase in susceptibility to disease,1 kids are less likely to develop resiliency (what some call “grit”), when you sanitize their lives from emotional pain, as it ill-prepares them for the negative life events they will inevitably encounter later on.
  • Not paying off shared bills. To avoid legal responsibility and a damaged credit score in the event your ex is late with payments, it is vital that any co-signed debt, such as credit cards or mortgage, be paid off or retitled before your divorce is finalized. The same goes for utility bills and any other jointly-held account.
  • Lock in your alimony payments. An unexpected event, such as death or disability, may leave your spouse unable to make alimony payments required by the divorce settlement. Payments should be secured with a life insurance policy that names the person who receives alimony, listed as the beneficiary. Your attorney or financial advisor will be able to help protect you against whatever fate might have in store.
In the fog of divorce, it’s common to say and do things we may later regret. Be sure not to add any of these common financial mistakes to that list.
1 “Scientists Discover That Antimicrobial Wipes and Soaps May Be Making You (and Society) Sick,” Scientific American website, July 2011.
The TIAA group of companies does not provide tax or legal advice. The above information may be helpful in understanding issues relating to divorce. We urge you to seek advice based on your own particular circumstances from a legal or financial advisor.
Teachers Insurance and Annuity Association of America has sponsored Ask the Expert posts for informational purposes only. Many of the experts are unaffiliated with Teachers Insurance and Annuity Association of America, College Retirement Equities Fund, and their affiliates and subsidiaries (collectively TIAA), and TIAA makes no representations regarding the accuracy or completeness of any information on the posts or otherwise made available by the experts. Statements of external featured experts are solely their own and are not endorsed or recommended by TIAA.
Responses from experts to questions posed by Woman2Woman community members are intentionally general in nature and are not intended to give personal, financial, or specific advice. Some strategies are complex, and more information is often needed to determine the personal needs of a community member. We strongly recommend that you consult with a financial advisor before taking any action based on an expertʼs opinion or other information you obtain from the Woman2Woman:Financial Living site so that all of your personal circumstances can be taken into consideration. Participation in the site does not render the member a client of the expert or of TIAA.
This site is not designed to accept or respond to requests or complaints regarding specific TIAA accounts, products or services. If you wish to discuss an issue of that nature, please contact TIAA at 800 842-2252. TIAA is not responsible for any opinions provided by members of this site. TIAA is not responsible for the content or privacy policies of third-party sites to which you may link.
The TIAA group of companies does not offer tax or legal advice. You should consult an independent tax or legal advisor for advice based on your own particular circumstances.
The material and responses are for informational or educational purposes only and do not constitute a recommendation or investment advice in connection with a distribution, transfer or rollover, a purchase or sale of securities or other investment property, or the management of securities or other investments, including the development of an investment strategy or retention of an investment manager or advisor. The material and responses do not take into account any specific objectives or circumstances of any particular individual, or suggest any specific course of action. Investment decisions should be made in consultation with an investorʼs personal advisor based on the investorʼs own objectives and circumstances.
Experts may not have medical or scientific training. Any information related to physical or emotional health is not intended to be used in place of a consultation with a physician.
TIAA is not responsible for the statements of community members. We may link to posts made by community members only to direct you to topics that may be of interest to you. This does not mean that we agree with the opinions of these community members. Their statements are solely their own and are not endorsed or recommended by TIAA.
August 1, 2016