4 Common Mistakes To Avoid in Divorce Settlement Negotiations

Negotiating divorce settlements isn’t always straightforward.

Emotions are usually high as thoughts of life after separation flood your mind.

In such a state of mind, it’s quite easy to get it wrong when negotiating settlements.

You may overlook critical factors and end up getting an unfair share of marital assets.

Your decision may seem reasonable at the moment, but the reality of its unsoundness may haunt you several months or years down the road.

This article explores typical missteps to be aware of when negotiating divorce settlements.

It will also outline corresponding strategies to sidestep these mistakes.

Read on and finalize your divorce with your emotional well-being and finances intact.

Overlooking long-term financial impacts 

When negotiating, don’t focus only on the immediate gains.

Consider the long-term financial implications.

For instance, divorces in the U.S. can be expensive, with average costs ranging from USD$ 15,000 to 20,000.

So, while your emotional state may drag you into going with an option that guarantees momentary satisfaction, consider if it will be favorable some months later.

Another example is if you were jointly contributing to a retirement account, you may want to receive a lump sum payment upon divorce.

If you spend this money on other non-essential stuff, you may end up regretting it once you retire because you won’t have enough savings for basic survival.

A better decision would be to transfer your share to another retirement account.

And if you jointly own property, like a home, an option to consider is to sell the home and split the proceeds.

But thinking closely about this decision, the cash you get may not be enough to acquire another property.

Thus, you may want to consider alternative options, like buying out your spouse’s share in the home.

Understanding the relationship between the length of marriage and divorce settlement is also crucial.

The longer the marriage period, the more your finances are intertwined, making it more challenging to equally split your marital assets.

In this case, seeking legal counsel becomes paramount to help you get a fair settlement.

Allowing emotions to overrule logic 

Undoubtedly, divorce stirs up a lot of wild emotions.

Parting with someone you’d planned to spend the rest of your life with is catastrophic.

And this can lead to irrational decisions.

You can get into agreements that you’ll later regret.

An example of an emotional pitfall is holding onto assets for nostalgic reasons.

You may opt to keep the family home due to the many memories you have of it.

But if it’ll be too costly to maintain the property, straining you financially, it may not be a feasible choice.

That said, you’d want to go slow through every step.

Always step back and ask yourself several times if a specific choice is financially sound.

Whenever overwhelmed by emotions, take a break.

You can also seek the services of a counseling psychologist to help you better understand and manage your emotions.

Ignoring tax implications 

Taxes are a force to reckon with, and they should never be ignored.

You must figure out how the division of assets and alimony agreements impact your taxes.

For example, if you’re allotted a stock portfolio that has considerably appreciated over time, you may have to pay capital gains tax once you decide to sell the stocks.

The cash you end up with may be less than what your spouse would get through other assets.

For alimony payments, you may be tempted to agree to pay a higher amount, thinking you can deduct it from your taxable income.

This will be a mistake given the new rules that alimony payments aren’t tax-deductible according to the Tax Cuts and Jobs Act of 2017.

Correspondingly, the recipient of the alimony may opt for less alimony with the thought that if it surpasses a certain threshold, it’ll be taxed.

But you understand that alimony recipients no longer pay taxes.

By understanding these tax implications, you’ll be able to factor them into your negotiations.

Underestimating post-divorce living costs

Misjudging future living expenses can be disastrous.

You may quickly calculate the expected expenditures based on your current lifestyle.

However, divorce may alter your way of life in ways you can’t easily figure out.

For example, you may need to buy a new car if you were previously sharing with your spouse.

So, overlooking fuel and servicing costs because your partner currently takes care of them may leave you short on funds.

You may also need to rent a house if you decide to sell your matrimonial home.

In that case, you’ll need to identify the neighborhoods you’d want to live in and find out about the average rent in the area.

Or, if you’re covered under your partner’s health insurance plan, you may have to take an individual plan after divorce.

Single parenting also comes with extra expenses.

Factor all these and calculate a reasonable amount for the alimony.

Conclusion

Negotiating divorce settlements requires composure despite the typical emotional roller coaster of parting with your spouse.

This way, you can better understand the current and long-term financial impacts and fight for a fair settlement.

Working with legal professionals can also provide you with a deeper understanding of your assets and liabilities, enabling you to make sound decisions.

Amber & The Team

Co-authors at ShineSheets.com

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