Skip to content

    4 financial mistakes to avoid if you’re facing divorce

    February 10, 2023

    Allworth Co-CEO Scott Hanson shares four of the biggest mistakes he's seen divorcing couples make over the years.

     

    When it comes to divorce and money, it’s usually what you don’t do - not getting everything in writing, not understanding your options, not hiring an attorney, not working to remain civil - that ends up costing you the most money, heartache, and regret down the line.

    Right up front, let me emphasize that I am not a divorce attorney. But after 30 years of advising, I have seen virtually every type of dissolution there is (from amicable to scorched earth nuclear) up close.

    With that in mind, what this column should do is help alert you to some of the things you must do to protect yourself and your spouse and children during the process.

    Since virtually everyone reading this has been directly impacted by divorce, and even though this article is a warning, here’s a hopeful reminder: Once you’re too far down the road, and securely in the clutches of its legal and logistical talons, it can be extremely difficult for most spouses to change course and work together (during the process) for the common good – that is, until you’ve unnecessarily spent a lot of time and money and finally agree to mediation – which is something that people often realize too late was actually there all along.

    So, simplistic as it may sound, when dealing with something so fraught with bitterness and heavy baggage as the divorce process, one way to avoid all-out war is to try, try, and try again to communicate openly and honestly with the very person you probably feel more contempt for than you’ve ever felt for another human being in your entire life.

    Simply, I’m here to tell you that, in 75% of the divorces I’ve seen, the terrible feelings fade. Some divorced couples end up eventually being close friends. That’s because most people, when given time and distance, move-on and even forgive.

    Here are four financial mistakes people make when deciding to divorce.

    1. Not knowing your entire financial situation

    This is especially true for those people who let their spouse manage the money and make the big financial decisions.

    If divorce seems inevitable, and you don’t have a clear picture of your financial situation, gathering these essential records and documents should be your biggest priority:

    • Bank statements
    • Tax returns going back at least three years
    • Retirement account statements (IRAs, 401(k)s, etc.)
    • Brokerage and investment accounts
    • Credit reports
    • All loans and credit card information (any money owed)

    Make lists and even take photos of every piece of property and note whether that property or asset is communal (acquired during the marriage) or personal.

    2. Not planning for how expensive it is to run your own home

    This is a big one that sneaks up on a lot of people, especially with shared custody of children. Suddenly, you are paying for things such as utilities, insurance, supplies, clubs, teams, pet care, and food that you used to share. Running a household on your own, with a few pets and part-or-full-time custody of the children, can cost about as much as doing it with a partner.

    The only difference? You’re financially on your own.

    3. Being emotionally attached to things you can no longer afford

    Anyone who has ever made the decision to leave the house of their dreams knows how painful it is. But do you know what’s even worse? Being forced to move because you fought to stay in the family home, only to realize too late that you can’t afford it.

    The same goes for cars, second homes, and time shares.

    No one wants their standard of living to ever decline, but sometimes you must step back to move forward.

    This applies even if you’re due a monthly alimony payment, because owning a home, especially one that housed an entire family, is expensive and time consuming.

    Then there’s the emotional component. The house may feel oppressively empty after a divorce.

    My experience has been, unless you can easily afford to stay put and you know you can adapt to the quiet when the kids are away, while perhaps more difficult in the short run, downsizing and starting over is often the more prudent choice financially and can be emotionally easier over the long haul.

    4. Not looking for hidden assets

    I don’t like this section, either. In the midst of the heartache of a pending divorce, and all the reasons that go into the split, there’s the added layer of searching for hidden money that may or may not actually exist.

    If you’ve asked your spouse for clarity, and you are in the unfortunate position of suspecting that he or she may be hiding assets, there’s no easy or comfortable way to approach this.

    First, I am not trying to sow doubt where none should exist. And, yes, I’ve seen relationships where the couple bent over backwards to be transparent. But I’ve also seen the opposite, and while sad, in the end, you’ve got to protect your interests.

    Let’s put it this way: You’ll probably be sorry if you don’t.

    While not definitive, here are some things that would make me concerned if they happened during the process of preparing for divorce.

    • Your spouse refuses to share financial information
    • Surprisingly large and unexpected cash withdrawals or transfers  
    • You are denied access to any shared account
    • Physical assets (jewelry) go missing
    • Your spouse claims to have not received an expected bonus
    • A big drop in income if your spouse is self employed

    When it comes to the possibility of hidden assets, while I sincerely hope it never gets to this point, should any of the above occur, you need to speak to your spouse, and if the answers aren’t clear, or you truly suspect they are hiding money, then you need to speak to the judge, who may deem it necessary to issue an order to prohibit the sale or transfer of assets.

    Obviously, divorce is difficult, expensive, and stressful. It’s also extremely common and, for many couples, the only reasonable path forward.

    And, while there are certainly dozens of other things to consider – such as the division of debts, closing all joint credit accounts, understanding that the IRS, as well as most creditors, are going to hold you both accountable for debt and taxes accrued while you are still legally married – the above could help you better prepare to limit the pain and logistics that can seemingly drag on forever at the end of a marriage.    

     
    © 1993-2024, Allworth Financial. All rights reserved.

      Privacy Policy   |    Disclosures   |    Cookie Preferences   |    Do Not Sell or Share My Personal Information

       

      Advisory services offered through Allworth Financial, a Registered Investment Advisor | Disclosures | Privacy Policy

      Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Check the background of this firm on FINRA's BrokerCheck.

      HMRN Insurance Agency, LLC license #0D34087

      1Barron’s 2024 Top 100 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking of independent advisory companies is based on assets managed by the firms, growth, technology spending, succession planning, and other metrics.

       2 Retention Rate Source: Allworth Internal Data, FY 2022

      3 The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey. 

      4 As of 7/1/2024, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $22.5 billion in total assets under management and administration. 

      5 InvestmentNews 2020 and 2021 Best Places to Work for Financial Advisers. The ranking reflects survey responses and scores completed by both employers and employees. Employers report their organization’s workplace policies, practices, and demographics. Employees complete a survey designed to measure the employee experience. 

      6  2021 Value of an Advisor Study / Russel Investments

      7 Ranked 9th Top Wealth Managers By Growth in Assets in the U.S. from RIA Channel, 2022. RIA Database and RIA Channel are registered trademarks owned by Labworks, LLC.

      8 USA Today Best Financial Advisory Firms 2024. The ranking is based on the growth of the companies’ assets under management (AUM) over the short and long term and the number of recommendations they received from clients and peers.

      9 NBRI Best in Class Ethics 2023. The Best in Class level is bestowed upon clients performing at or above 90 percentile of the NBRI ClearPath Benchmarking Database.

      ✢ Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.

      ✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.

      †Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company. 

      Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.