Divorce is never easy, and having substantial assets to divide makes things even more challenging. Emotions can cloud judgment, leading to decisions that can have long-lasting financial consequences. Whether you’re just starting the divorce process or already in negotiations, knowing common mistakes you should avoid can help ensure you make informed decisions and protect your interests.
You may be working with your soon-to-be ex to reach an agreement on property division, either with your attorneys or through mediation or collaborative divorce. This article will discuss some common mistakes you should keep in mind to ensure that you steer clear of some mistakes that could be costly in the future.
Not Understanding Marital vs. Separate Property
One of the most significant mistakes people make is needing to understand the difference between marital and separate property. Marital property is assets acquired during the marriage and is subject to division during a divorce. On the other hand, separate property describes assets acquired before the marriage or received as an inheritance or gifts during the marriage and typically remains with the original owner.
This distinction isn’t always straightforward. For example, if you owned a house before marriage but used marital funds to improve it, the property may now be considered marital property. Misclassification of assets can lead to an unfair division of property, so it’s essential to work with legal professionals who can ensure all assets are accurately categorized.
Failing to Account for All Assets and Liabilities
Disclosing all assets and liabilities is crucial during a divorce. However, some people may (accidentally or deliberately) forget to include certain property types. Failing to account for retirement accounts, business interests, stock options, and cryptocurrency can lead to a skewed outcome.
Tennessee law requires full financial disclosure; failing to disclose assets can result in penalties. Accounting for debts like mortgages, credit card balances, and car loans is also needed. Since both spouses may be jointly responsible for these liabilities, failing to disclose them can lead to significant financial burdens for one party after the divorce.
Not Considering Future Tax Consequences
Splitting assets is just one side of property division during a divorce. The other side is understanding the future financial consequences of those decisions. Failing to consider tax implications is a common mistake in Tennessee divorces.
For instance, if you liquidate a retirement account to divide the funds, you may face significant tax penalties. And selling real estate can trigger capital gains. When you fail to understand how taxes can impact short-term and long-term financial stability, they can significantly reduce the value of the property you receive and lead to an unfair division.
Overvaluing the Family Home
The family home is often one of the most emotionally charged assets in a divorce. One spouse may insist on keeping the home without considering the financial implications. Although staying in the family home can provide stability, it can become a financial burden, especially if the spouse keeping the home can’t afford the payments, taxes, maintenance, or other costs.
If one spouse takes the home, the other spouse may need to receive other assets to compensate. Before deciding to keep the family home, it’s critical to evaluate whether or not it makes financial sense in the long run.
Failing to Account for Retirement Plans
Some of the most valuable assets in a divorce are often retirement accounts like IRAs, 401(k)s, and pensions, and people frequently overlook the complexities of dividing these accounts. If contributions were made to these accounts during the marriage, Tennessee law considers them martial property.
A QDRO (qualified domestic relations order) is usually required to divide retirement accounts. This legal document allows a tax-free transfer of retirement funds from one spouse to the other. Without a QDRO, you could face fees and tax penalties that will reduce the value of your retirement account.
Rushing Through the Process
Many people want to finalize their divorce as quickly as possible. However, rushing through property division can lead to significant mistakes with long-term financial consequences. For example, you may agree to a settlement without fully understanding the value of certain assets or the impact of your decisions.
Properly evaluating and negotiating property division is critical to ensuring a fair outcome. Gathering documentation, consulting with legal and financial professionals, and thinking carefully about the future before agreeing to property division is essential.
Relying on Verbal Agreements
Sometimes, couples may try to settle property division through verbal or informal agreements. While this may seem simple and less aggressive, it can lead to significant problems in the future.
In Tennessee, property division agreements must be legally binding, meaning they must be in writing and approved by the courts. Verbal agreements are not enforceable, and if one person changes their mind or circumstances change, it can be impossible to hold them accountable.
Failing to Update Legal Documents
After finalizing property division, many people fail to update important legal documents such as your will, powers of attorney, and beneficiary designation. Failing to update these legal documents means your ex-spouse could remain the beneficiary of life insurance policies, retirement accounts, or other assets, even if you no longer want them to receive those benefits.
Let Attorney Hunter Fowler Help You Avoid Costly Mistakes During Your Divorce
Divorce is a life-changing event that can have extensive emotional and financial effects. While emotions may run high during your divorce, it’s crucial to remember that your divorce can shape your financial future. Enlisting the services of a qualified divorce attorney is essential to protecting your interests and securing your financial future.
Attorney Hunter Fowler is a Murfreesboro attorney with extensive experience in Tennessee divorce law and a solid understanding of equitable distribution. We will ensure that every asset is accounted for, every legal detail is managed, and your best interests are protected. When you work with Hunter, you’ll have a trusted partner who is committed to securing a fair and favorable outcome for your future.
Contact us today and let our team help you avoid costly mistakes.