Divorce is already emotionally exhausting. Financial disaster could only add fuel to the fire. Unfortunately, many men make costly mistakes during divorce proceedings that haunt them for years. These errors can impact everything from retirement savings to monthly cash flow, leaving lasting consequences that could have been avoided with proper planning and legal guidance.
Recognizing these mistakes and learning how to prevent them can help you save thousands of dollars and minimize stress. This article will cover the most common financial missteps men in Howard County, MD, make during divorce, including mishandling retirement accounts, overlooking tax implications, failing to account for Social Security benefits, failing to consider hidden costs, and making emotional decisions that damage long-term financial health.
1. Mishandling Retirement Account Division
One of the most expensive mistakes involves the improper division of retirement accounts. Did you know splitting a 401(k) or pension requires a Qualified Domestic Relations Order (QDRO)? A QDRO is a legal directive that tells retirement plan administrators how to split retirement assets in a way that avoids early withdrawal fees and extra taxes.
An improperly handled QDRO can expose you to substantial tax consequences. If you simply withdraw funds to give to your ex-spouse, you’ll likely pay income tax plus a 10% early withdrawal penalty if you’re under 59½.
Another standard error is forgetting to adjust beneficiary designations after the divorce. Your ex could remain the beneficiary on your retirement accounts, life insurance, and other assets.
2. Overlooking Tax Implications
Tax planning during divorce often gets pushed to the back burner, but this oversight can cost you dearly. Receiving $200,000 in a traditional IRA differs from receiving $200,000 in a Roth IRA or $200,000 in home equity. The traditional IRA will be taxed as ordinary income when you withdraw it, while Roth IRA withdrawals are tax-free in retirement.
Many men in Howard County, MD, also misunderstand alimony taxation. For divorce agreements finalized after December 31, 2018, alimony payments can no longer be deducted from the payer’s taxes and are not classified as taxable income for the recipient.
3. Ignoring Social Security Benefits
According to the Social Security Administration, a divorced spouse may receive benefits from their former partner’s earnings record, provided the marriage endured for at least 10 years. This frequently disregarded advantage can significantly influence your retirement income plan.
Your ex-spouse can collect up to 50% of your full retirement benefit without affecting your benefit amount. The Social Security Administration won’t notify you when your ex files for these benefits. But if you were married for at least 10 years and your ex-spouse earned a higher income, you might be eligible to receive benefits calculated from their earnings record.
4. Failing to Account for Hidden Costs
Divorce in Howard County, MD, entails numerous expenses that many men fail to anticipate. Beyond attorney fees, you’ll need to consider the cost of establishing a new household, potential changes to health insurance coverage, increased transportation costs if you move farther from work, and possible child care expenses.
Health insurance deserves special attention. If you were covered under your spouse’s plan, you will need new coverage. While COBRA allows you to continue on your ex-spouse’s plan temporarily, it’s often expensive.
Maintaining two households rather than one can greatly impact your monthly budget. Housing, utilities, and everyday expenses that were once shared now fall entirely on each individual.
5. Making Emotional Decisions About Assets
Emotions run high during divorce, and financial decisions made in anger or hurt often backfire. Research by Sonya Britt-Lutter, Ph.D., and published by Kansas State University, found that arguments about money are the top predictor of divorce for both men and women.
Some men in Howard County, MD, fight to keep the family home out of emotional attachment, even when it’s financially impractical. The house may carry memories, but it also carries a mortgage, property taxes, maintenance costs, and upkeep that you’ll now handle alone. Running the numbers with a clear head often reveals that selling and dividing the proceeds makes more financial sense.
Similarly, agreeing to unfavorable terms just to expedite the divorce and “get it over with” can have lasting consequences. While a quick resolution feels appealing emotionally, rushing through financial negotiations without proper analysis and legal counsel often costs more in the long run.
Schedule Your Consultation with a Top Divorce Attorney in Howard County, MD
Divorce involves complex financial and legal issues that affect your financial security for decades. Working with a knowledgeable divorce attorney in Howard County, MD, residents can trust to help them avoid these costly mistakes. A skilled attorney can guide you through retirement account division, tax planning, Social Security considerations, and the countless other financial aspects of divorce.
At Milstein Siegel, our knowledgeable family law attorneys in Maryland recognize the financial intricacies of divorce and are committed to safeguarding your interests every step of the way. We serve clients throughout Maryland, providing personalized guidance personalized to your situation.
Contact Milstein Siegel at (443) 230-4674 or contact us online to schedule a consultation and get the professional legal support you need during this challenging time.