If you're getting a divorce, it makes sense to keep quiet on social media, says New York divorce attorney Jacqueline Newman. One client's husband, for example, insisted he couldn't afford a proposed settlement. Then he inadvertently gave Newman leverage to get a better deal for her client: "He bragged [on social media] about the great vacation he just took and the big deal he just closed," Newman says. "And I said, 'Thank you very much.' "
Here are other potential pitfalls that can have significant financial consequences.
Get all the paperwork
You may not know that you need certain documents until years down the road, when your ex may be unwilling or unable to provide them, says David Stolz, a CPA and personal financial specialist in Tacoma, Washington. While you can, gather paperwork that shows:
- Account numbers and balances for all of your financial accounts.
- Social Security statements showing your spouse's earnings record and expected future benefits.
- Amounts paid for major assets, including your house.
- Receipts documenting home improvements.
Don't ignore tax consequences
Investments, property, retirement accounts and other assets may have the same face value now, but trigger different tax treatments later — and that can dramatically affect how much they're worth, says Kathy Longo, certified financial planner and certified divorce financial analyst in Edina, Minn.
A Roth IRA is worth more than a traditional IRA with the same balance, for example, because Roth withdrawals won't be taxed in retirement. And homes can be particularly problematic, especially in high-cost areas. A married couple can exclude up to $500,000 of home sale profit from their taxes, but a single person can avoid tax on only $250,000. Couples need to consider the future after-tax value of assets during negotiations, Longo says.
Another big change that can affect divorce negotiations is spousal support. Also known as alimony, spousal support used to be taxable to the person receiving it and tax-deductible for the person paying. That's no longer true. Starting with divorce agreements made this year, recipients won't owe taxes on spousal support, and those who pay it can't deduct it.
Leaving joint credit accounts open
Even if one spouse agrees to take responsibility for a debt, the other spouse can still be held liable if his or her name is on the account. Creditors aren't bound by divorce agreements. Ideally, divorcing couples should close joint accounts, remove authorized users from credit cards and transfer the debt to new accounts or loans in the responsible spouse's name only.
Traditional divorce vs. collaboration, mediation
A survey by Nolo, a self-help legal publisher, found divorce costs among those surveyed averaged $15,500 in 2015. Divorces involving child custody and support issues averaged $19,200, and costs can shoot far higher if cases go to trial. Mediation or collaborative divorce can save money, New York divorce attorney Newman says. Mediation, an alternative dispute resolution process, often relies on a neutral third party to help devise an agreement. With a collaborative divorce, each spouse is represented by an attorney trained in the collaborative process of negotiating deals that are fair to both parties.