The Biggest Financial Mistake People Make During Divorce

Divorce can often bring about tumultuous times for a family. Sometimes they can go very smooth and others can literally be the ‘War Of The Roses’. In the midst of being between the lawyers, couples often make financial mistakes that can lead to problems down the road. The number one mistake that I have seen amongst divorcing couples is their lack of consideration around liquidity of assets.

It’s pretty common after a separation that one spouse will end up with the primary residence and in turn the other spouse may wind up with a commensurate amount of assets between brokerage accounts, retirement accounts, and savings accounts. While the math may show a true 50/50 split of the overall net worth of the couple, the reality is that one of the spouses will be stuck with a paper asset that could be tough to dispose of if cash flow becomes an issue.

This can also occur when one spouse is the owner of a closely held business as well. It can be very difficult to value the overall business, and this can also leave one spouse with an asset that may have little to no market to convert to cash while the other spouse gets liquidity with the remainder of the couple’s estate.

Upon a divorce, the spouse that gets stuck with the primary residence (often the wife), may not consider what will happen when child support and/or alimony runs out down the road and there isn’t enough monthly cash flow to potentially pay for the mortgage. This can leave that spouse in a difficult financial position and actually put them in a fire sale position due to the lack of liquidity.

When children are involved with a divorcing couple, considering selling a primary residence can be an extremely onerous task because the couple doesn’t want to see the lives of their children uprooted from friends, school, etc. The couple should consider both the short and long term ramifications of splitting up the assets including overall tax implications. The key mistake to avoid is having one spouse be illiquid.

Written by: Ted Jenkin

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About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves

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Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation. 

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5 Comments

  • Avatar
    April 9, 2014

    Nobody wants to get divorce. but it is important to know what to do if this situation comes before. this post can help in this matter. thanks for sharing your experience.

  • Ted Jenkin @ Your Smart Money Moves
    April 11, 2014

    True enough. Divorce is one of the biggest reasons people don’t become millionaires. Hope these tips help!

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