Common Financial Mistakes People Make During Divorce Proceedings

A financial decision that makes perfect sense today can look very different once your divorce settlement comes together. Keeping the house may mean taking on expenses you cannot comfortably carry, while giving up one asset for another may cost more than the numbers suggest. In an Indiana divorce, some of the most consequential financial mistakes come from making decisions before you understand the full marital estate and how each choice affects the bigger picture. 

At The Nice Law Firm, we help people throughout Indiana address the financial issues that arise when a marriage ends. We can review the assets, debts, and financial decisions involved in your divorce, explain how Indiana's property-division rules may apply, and help you evaluate your options before making decisions that may be difficult to undo. 

Assuming Property in Your Name Is Automatically Yours

Whose name appears on an account, deed, or other asset does not necessarily determine whether it belongs in the Indiana marital estate. Indiana generally follows a "one-pot" approach to marital property. 

Under Indiana property division law, the court divides property owned by either spouse before marriage, acquired during the marriage before final separation, or acquired through joint efforts. For this purpose, final separation generally means the date the divorce petition is filed. 

Assuming that an account, investment, home, or other property is outside the divorce simply because it is titled in one spouse's name can leave you negotiating from an incomplete picture of the marital estate. 

Treating A 50/50 Division as Automatic

Indiana presumes an equal division of marital property is just and reasonable, but the final division does not have to be 50/50. A court may consider each spouse's contributions, property acquired before marriage or through gift or inheritance, each spouse's economic circumstances, dissipation of property, and the spouses' earnings or earning abilities when deciding whether the equal-division presumption has been overcome. 

Our divorce attorneys can evaluate the financial circumstances that may matter to property division and how they fit together in the marital estate. 

Hiding, Transferring, Or Wasting Marital Assets

Moving or spending money during a divorce is not automatically improper, but hiding, diverting, or wasting marital assets can affect property division. 

The Indiana Court of Appeals has explained that the central question in determining dissipation is whether marital assets were actually wasted or misused. Relevant considerations include whether spending benefited the marriage, when it occurred, whether it was excessive, and whether the intent was to hide or deplete assets. 

Moving substantial funds, transferring property, making unusually large purchases, or giving assets away during a divorce may later require explanation, while routine spending on reasonable financial obligations does not necessarily amount to dissipation. Indiana courts can also issue provisional orders while a divorce is pending, including temporary restraining orders concerning the disposition of property. 

Assuming Your Ex Will Be Solely Responsible for Joint Debt

A divorce decree can assign a joint debt to one spouse without releasing the other spouse from the obligation to the creditor. If your name remains on a joint mortgage, loan, or credit-card account, the creditor may still pursue you if your former spouse stops paying. Depending on the debt, eliminating that exposure may require refinancing, paying it off, closing a joint account, or obtaining the creditor's agreement to release one borrower. 

Mishandling Retirement Assets

Retirement accounts can require additional steps to divide correctly. Many employer-sponsored plans require a qualified domestic relations order, or QDRO, before paying a former spouse an awarded share.

The IRS explains how QDROs work in divorce, including rollover options. Distributions to a spouse or former spouse from a qualified employer plan under a QDRO are also generally exempt from the 10% additional tax that can apply to early distributions. Federal civilian, military, and other retirement systems may require different court orders. 

Account balances can also obscure important differences. For example, $100,000 in a traditional pre-tax 401(k) is not economically identical to $100,000 in cash because withdrawals from the 401(k) generally will be subject to income tax. 

Forgetting To Update Beneficiary Designations

Divorce does not automatically produce the beneficiary changes you intend, and some retirement plans may pay benefits based on the designation on file. Reviewing beneficiary designations on retirement accounts, life insurance, and other assets after divorce can help ensure that they reflect your intended choices. 

Comparing Assets Only by Their Stated Value

Two assets with the same stated value may leave you in very different financial positions after divorce. A home may carry a mortgage and ongoing expenses, and a later sale can have tax consequences depending on your filing status and whether you satisfy federal ownership and use requirements.

A business interest or other difficult-to-value property may require more information than the balance shown on a statement. Looking beyond headline value can help you evaluate what an asset may actually mean for your finances. 

Counting On Spousal Maintenance

Indiana limits court-ordered maintenance to specific circumstances, including incapacity, caring for a child whose incapacity affects the caregiver's ability to work, and rehabilitative maintenance. Rehabilitative maintenance is limited to no more than three years from the final decree. 

Spouses may also agree to maintenance terms in a settlement, so the limits on what a court may independently order do not necessarily determine what the parties may agree to. 

Making Financial Assumptions Before You Agree

You cannot meaningfully evaluate a proposed property division without knowing what the marital estate contains, what its assets and debts are worth, and what the agreement will require from you afterward. 

Review bank and investment statements, retirement accounts, tax returns, loan and credit-card records, business records, and documents showing ownership or value. Identifying missing information can be especially important if your spouse handled most of the household finances. 

Consider how the assets, debts, taxes, insurance costs, and other obligations in a proposed settlement will affect your finances after divorce. If you receive health insurance through your spouse's employer, account for the cost of replacing that coverage. The timing of the divorce can also affect your taxes because federal filing status generally depends on whether you are married or unmarried on the last day of the year. 

That review is particularly important because Indiana property-division orders generally cannot be modified after the divorce decree, except in limited circumstances such as fraud. Understanding the financial effect before you agree can help you spot problems while you still have a chance to address them. 

Make Informed Financial Decisions During Your Indiana Divorce

Financial decisions made during divorce can affect what you own, what you owe, and the resources available to you after the marriage ends. At The Nice Law Firm, our attorneys handle Indiana divorce and family law matters and can help identify assets and liabilities, evaluate property-division issues, address disputes involving marital finances, and negotiate or litigate unresolved issues when necessary. 

With offices in Indianapolis, Scottsburg, Terre Haute, Kokomo, Martinsville, Winamac, Lebanon, Greensburg, and Rensselaer, Indianae serve clients through offices across Indiana and offer in-person, telephone, and video consultation options. Contact our Indiana divorce attorneys to discuss the financial issues involved in your divorce and the decisions you may need to make before reaching an agreement.