Financial Mistakes to Avoid in Your Divorce Settlement in California

Mistakes made in divorce settlements over property division and support issues can have serious consequences for your future financial position. Despite this, many divorcing couples fail to take the necessary steps to protect themselves against costly errors.

Familiarizing yourself with the typical types of missteps people make can help prevent many financial issues if you face separation or divorce from your partner. Here are some of the most common mistakes to avoid.

It’s essential to seek legal advice before you sign any separation agreement, divorce settlement or other documentation that leads to divorce.

Most people have more legal rights and options than they realize during the stressful period of separation from a long-term spouse or partner.

A dedicated and experienced divorce lawyer can offer valuable guidance and support so that you don’t make any moves that you later regret. No two divorces are the same—and going down the route of an online “DIY divorce kit” may end up costing money rather than saving it.

The marital estate (“community property”) in California includes most assets acquired during the marriage plus the increase in value of any assets that occurred during the marriage until the day of separation.

Assets brought into the marriage are considered “separate property” and are not subject to division. It is important to document these clearly so that both spouses are aware of what must be divided and what can be excluded during the division of the marital estate.

Failure to identify separate property is a serious mistake that can end up dividing property that should be considered yours alone. A divorce lawyer can assist with identifying and documenting your community and separate property.

One of the most basic principles when it comes to property division is that full financial disclosure is required by both parties before settling matters.

Trying to limit what you must divide with your spouse by deliberately concealing assets and not “declaring” them can be a huge mistake with serious reputational, legal, and financial consequences. Transferring assets to a third party to conceal them is also a big mistake that could count against you for the remainder of the divorce case.

A seasoned divorce lawyer can help prevent this mistake and ensure full transparency with financial information so that all calculations are made according to California law.

Some assets like bank accounts are relatively simple to put a dollar value on but what about the house, pensions or items that have emotional attachments? How should they be valued during a divorce?

Sometimes, assets do not meet their expected valuations when the time to sell arrives. The process may also take considerable time. Other complications arise when divvying up pension contributions or the increase in value of assets that were brought into a marriage.

These issues can be legislated for with the help of an experienced divorce lawyer accustomed to complex financial situations within relationships.

Taxes are often overlooked or only partially taken into account in divorce settlements despite a potentially major impact on the financial positions of the spouses.

The implications can extend well beyond the simple change of filing status after a divorce.

Firstly, transactions in divorces should be non-taxable, with money transferred out of a 401(k), 403(b) or deferred compensation plan incurring no negative tax effect—but only if disbursed properly. These and other assets (especially those subject to capital gains taxes) may attract taxes if correct procedures are not followed.

Besides discussions about property division, tax consequences may exist for spousal support and child support too.

Reliable financial and legal advice from a professional who understands the various assets at stake and their tax status can protect spouses from attracting unnecessary tax burdens.

Did you know that a divorce can impact your credit rating?

It may not be the first thing that comes to mind when divorce proceedings start but after you split from your spouse, his or her credit no longer influences yours. This can create some difficulties.

You’ll also need to consider any debts incurred from arrangements made before the split, such as credit cards, home loans, car financing, etc. These debts may need addressing in the divorce settlement or they could negatively impact your credit rating even after the split.

As well as making direct financial mistakes, it’s easy to make other mistakes that can end up costing you during a divorce in California.

Divorce proceedings require a lot of preparation and documentation, regardless of whether the divorce is contested or uncontested.

Separated spouses should take the time to locate the necessary documentation and evidence before triggering the legal processes. From a financial standpoint, try to gather bank statements, tax returns, property records, and so on.

Beyond the more obvious evidence that you’ll need, an experienced divorce attorney can guide you on how to assemble other documentation that will help you exercise your rights and meet your obligations during the divorce.

It’s common to want to “move on with your life” during a divorce and not waste time. This can lead to hasty decisions that are not necessarily in your best financial interests in the long term.

Consider the consequences of decisions and never agree to anything just to speed up a settlement. It may seem like a reasonable decision in the short term but rushed agreements can leave money on the table, impacting your longer-term financial position.

Children’s best interests are the major consideration for any decisions that affect them in divorces in California.

When negotiating or collaborating on a divorce settlement, bear in mind that judges won’t approve anything that could negatively impact the children. Neglecting the children’s interests or using them as leverage to improve your position is likely to count against you.

Generally speaking, negotiated agreements that avoid conflict and promote the two parents working together for the benefit of their children are encouraged by the California family law system.

All decisions during a divorce—financial and otherwise—must be made with a calm, clear head or they may come back to haunt you.

This is where guidance from an experienced divorce lawyer can help greatly. Your attorney will understand your emotions but should work to protect your position and prevent any rash decisions made out of spite, bitterness or anger that could cloud judgment and end up costing you later.

Remember, both sides in a divorce benefit from decisions that work to avoid expensive and time-consuming litigation.

If you have any financial issues during a divorce in California, the affordable lawyers at The Sands Law Group APLC can discuss your options. Contact us or call at 213-788-4412 today for a free 15-minute phone consultation about your case.