Divorce creates a huge financial change to your life. If both you and your spouse worked, you’ll be going from a double income household to a single income one. On top of that, you may be responsible for child support, alimony, or other payments. Those two things are impactful enough, but financial distress can be compounded by other decisions that you make. Here are a few financial mistakes to avoid during divorce.

1 – Paying Bills Late

Late payments for debts such as credit cards and loans have a big impact on your current and future financial health. First and foremost are the fees. If you are already struggling with payments, compounding late fees will only make matters worse. Additionally, payment history is reported to the credit bureaus and will dramatically reduce your credit score. Low scores lead to higher interest rates and can even prevent you from securing new lines of credit. This is one of the most important financial mistakes to avoid during divorce.

2 – Cancelling Individual Credit Cards

A very common misconception is that closing credit cards will improve your score. In fact, it has the reverse effect and here’s why. One of the biggest credit score factors is balances compared to available credit lines. For example, if you have $10,000 in available credit across various credit cards and have $1,000 in balances, then your’e using only 10% of your available credit. If you close accounts and have only $4,000 remaining in total credit limits, your $1,000 balance now represents 25% of your available credit. This gives the impression that you’re relying heavily on credit cards and will lower your credit score. It’s therefore best to leave accounts open but with very low or zero balances. The one exception is for joint accounts.

3 – Leaving Joint Accounts Active

If you have joint accounts with your ex-spouse, you should consider closing those. If your spouse continues to use a joint account, his/her payment history (good or bad) will be reflected on your credit report. Additionally, if your ex fails to pay, you could be held liable for that debt. It’s therefore best to separate accounts upon divorce. Most creditors won’t simply remove a name from an account. Instead, the existing account must be closed and a new account created.

4 – Forgetting Tax Implications

Before, during, and after divorce, you will continue to file tax returns. Whether you file jointly or separately and what deductions each of you claims will impact your tax liability. Consult with a tax advisor to understand your options and to make better decisions regarding your taxes.

5 – Underestimating Living Expenses

Budgeting is extremely important after divorce. If you’re not great with finances, consider hiring someone to help you with it. The most common mistake is underestimating living expenses. By creating a realistic plan, you will maintain financial stability after divorce.

Other Financial Mistakes to Avoid During Divorce

The above are just a few examples of financial mistakes to avoid during divorce. There are many others that we see divorcees make. As your divorce attorneys, we can provide extra guidance and help you avoid those pitfalls. With proper counsel and a well-planned strategy, you can reduce the negative financial impact of divorce. Contact us today to schedule a consultation with our team.