While a divorce may leave a mental or emotional toll on both parties, it doesn’t have to hurt financially. Avoiding money mistakes can go a long way in easing the pain. From holding on to the family home to ignoring your expenses, here’s a look at five financial mistakes that should be avoided at all costs during a breakup. (For more, see: What It Costs To Get Divorced.)

Failing to Create an Inventory of Assets

Often one partner has a better understanding of the couple's finances than the other. This person likely has a solid idea of how much money their investment accounts hold, the value of their assets and how much cash is in their savings accounts. Whereas typically, the other partner isn't as up to speed.

If you're the latter person, you'll want to take an inventory of all the assets before even contemplating splitting them up. For instance, you wouldn't want to overlook an investment property that could yield you more cash. In addition to knowing what's in your bank accounts, you should track your life insurance policies and all outstanding debt.

Holding On to the Family Home

The parent with primary custody of the children usually wants to stay in the family home to limit disruptions to their children's lives. However, holding on to a home you're not in financial shape to maintain can end up costing a lot more down the road. Before you decide if keeping the house is the right move, figure out if you can afford the mortgage, as well as the costs associated with maintaining the property. If it’s going to be a stretch, selling your house and downsizing may be a better option.

Hiding Assets from Your Spouse

In ugly divorces where there's a lot of money at stake, one party will often go to great lengths to hide assets, so it looks like he or she has less money to contribute in a divorce. Doing that is not only shady but also illegal and could set you up for more legal trouble if your trickery is uncovered. Some of the repercussions for hiding assets from your spouse could include a settlement (that will give your spouse additional assets), a contempt of court ruling, fraud charges and perjury charges.

Underestimating Your Expenses

Even if you're awarded the house in a divorce, you may still have to overhaul your life if you can’t afford daily expenses. So it’s a good idea to take a realistic look at how much money you’ll need to live on. Things to factor in include monthly food costs for the family, the clothing budget for the children and money for discretionary items like eating out or going to the movies. The goal is to make sure you can cover all the expenses after a divorce without relying on your ex.(For more, read: How To Manage Your Finances Through A Divorce.)

Not Considering the Tax Implications

It's important to remember that even when both parties agree on how to divide assets, each has to be mindful of the tax implications.  You may be excited to know your soon-to-be ex will be handing over an investment account with gains of $100,000; however, that portfolio will come with a tax hit, lowering the amount you'll receive. Even providing child support can have tax implications, so make sure you take the time to consider taxes before divvying up assets.

The Bottom Line

Divorce is never easy, but it can be particularly hard if you make financial mistakes. The end goal of a successful divorce is for both parties to part ways with their fair share of the assets. It's important to secure the best divorce payout by avoiding mistakes like keeping the family house at all costs, failing to take an inventory of assets and not thinking about the tax.

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