No one imagines they will someday get divorced and when that day comes people hope it can be short, civil, and fair. Unfortunately since during a divorce a family’s assets must be untangling from one household and reconfigured into two; short, civil, and fair often quickly deteriorates into extended, contentious, and seemly inequitable. These financial decisions are complicated and can be colored by heightened painful emotions. The following is advice from Kentlands Psychotherapy’s guest writer Steven Bryant of Synergy CPA Solutions on how Maryland families can avoid many of the most common financial mistakes made during divorce negotiations.
The 8 Common Mistakes
1. Not Establishing a Budget– The most common mistake spouses make when pursing divorce is not establishing a
legitimate monthly budget. If no monthly budget is ever established, how can spouses know how much
support/marital assets he or she must receive to be equitable?
2. Keeping the Marital Home– The marital home is almost always the largest asset couples have when pursing
divorce, and many spouses want to keep this asset for various reasons. A spouse should only keep the marital home
if he or she can afford it! If the spouse who keeps the marital home cannot afford it, they will be forced to sell the
home, resulting in that spouse receiving an asset that has been severely depleted from the initial value received
through the divorce decree (Capitals Gains Tax, Sales Costs, Etc.). Spouses should consult a financial specialist to
see if they can afford the marital home BEFORE an agreement is signed.
3. Assuming that a 50/50 Split is Fair– Maryland is an “Equitable Distribution State” when considering divorce,
meaning that a 50/50 split of marital assets is no longer what qualifies a divorce settlement offer to be equitable. A
settlement is now seen as equitable when first considering all financial aspects of both spouses before coming to an
4. Not Considering Marital Debt– When being divorced, it is important to not only equitably distribute a couples
marital assets, but also the marital debt they have accrued if any, so that one spouse is not left with paying off more
liabilities then the other.
5. Failure to Consider Long-Term Financial Security– Spouses tend to look at just the short term financial
implications of a settlement offer like living situations, alimony, property settlements, etc. It is beneficial to hire a
financial specialist when pursuing divorce, in order to know the long-term financial implications a settlement offer
would have on a spouse BEFORE an agreement is signed.
6. Qualifying For a Mortgage– In order for a previously divorced spouse to qualify for a mortgage using alimony as
income, the spouse must show 6 months of alimony already paid, as well as three years to be paid. This means to
qualify for a mortgage using alimony as income, party’s must agree that it is to be paid for at least 3 years. Spouses
should also seek their eligibility to qualify for a mortgage BEFORE an agreement is signed.
7. Tax Treatment of Child Support vs. Alimony– When finalizing a separation agreement, spouses should know the
different tax implications when considering child support vs. alimony, as well as how these two support methods are
categorized. Any support allocated as alimony in the separation agreement is considered tax-deductible, while
anything allocated as child support cannot be deducted! Spouses should see a financial specialist to know the
difference in tax/financial implications, and how they will affect them specifically.
8. Having Unrealistic Expectations – The last and most detrimental financial mistake made by divorcing spouses is
attempting to receive as much money as possible from the ex-spouse. When a spouse tries to receive as much money
as possible and are not willing to work together, this can lead to extended litigation, resulting in extremely high legal
fees for both spouses. If a spouse is willing to cooperate from the start, the couple’s marital assets will not be
depleted from attorney fees, and both spouses will receive higher asset values then they would through litigation.
Mr. Steven Bryant is a Certified Divorce Financial Analyst®. He’s an advocate for equitable and efficient processes that protect everyone’s interests. He can be reached at 410-721-9760 Office (Ext.3). His firm offers services to couples in the process of collaborative divorce as well as settlement analysis services to individuals who are wanting to get a specialist’s opinion on the offer they are about to make or have recently received.
523 Benfield Rd, Suite 203
Severna Park, MD 21146