Avoid these 4 mistakes if you’re filing for divorce
January is a popular month for couples to start consulting with attorneys about ending their marriages.
And because divorce is one of the most consequential decisions you will ever make — in both emotional and financial terms — it’s essential your interests are protected.
Avoid these four common mistakes if you’re planning a split with your spouse.
Don’t compare yourself to everyone else
One of the biggest mistakes people make when pursuing a divorce is seeking information about the divorce process — or the likely outcome of their own divorce — by comparing themselves to divorced family members and friends.
Even worse, many people look online and compare themselves to what they read from anonymous online sources, said Jeralyn Lawrence, a family law attorney with Lawrence Law in Watchung.
“It is often difficult to undo the preliminary `research’ clients conduct, as each divorce is different from the outcome of that of a friend, and it becomes a challenge to impress this upon someone who has taken advice from others who are not necessarily qualified to give it,” she said. “This tends to result in a skewed perception of how a divorce matter will proceed and could result in unrealistic expectations.”
Don’t wait to get a lawyer
People often become their own worst enemies, especially if they decide to count on their online research skills.
“The internet is full of information; some of is correct and some of it incorrect,” said David Carton, co-chair of the matrimonial and family law practice at Mandelbaum Salsburg in Roseland. “The worst situations that I see are people that come in to see me after they have signed an agreement resolving all issues and it is clear that they were taken advantage of financially.”
They are then faced with the unenviable task of trying to reopen their divorce case, he said.
Instead, make sure your rights are protected and hire an attorney to guide you through the process.
Consider other professionals, too
While a family law attorney is essential to protect your interests, other professionals can help with the process.
Consider meeting with a financial advisor who is also a certified divorce financial analyst (CDFA). Professionals with this designation have been trained to help people understand the short- and long-term money consequences of divorce.
“Understanding the financial and tax implications of divorce are extremely important as the decisions you make can impact your financial goals for a lifetime,” said Jody D’Agostini, a certified financial planner with The Falcon Financial Group in Morristown who also holds the CDFA designation. “It is important to consider the totality of your agreement."
But financial pros aren’t the only ones who can help.
D’Agostini said because divorce is a very emotional time, your ability to make analytical decisions can be hampered.
“I encourage individuals to work with a therapist so that they can move forward with a healthy attitude, feel empowered and ready for the next chapter of their life,” she said. “You want to be sure that you are okay for next year, five years from now, 10 years from now and throughout your lifetime.”
Don’t let emotions take over
Indeed, it’s easy to make emotional decisions during the divorce process, said Thomas Roberto, a family law attorney with Adinolfi, Molotsky, Burick & Falkenstein in Haddonfield.
“I encourage clients to try and put their emotions aside, which can sometimes be easier said than done, and view the choices they have to make as part of the divorce process as business decisions,” Roberto said. “In other words, I want my clients to make the smart decision for them and their children, not make decisions based on anger or frustration for their soon-to-be former spouses.”
Seeing divorce as a business transaction is a good strategy, said Ken White, a certified matrimonial attorney with Shane and White in Edison.
“With the exception of addressing issues of custody and parenting time, getting a divorce in New Jersey is the equivalent of a business transaction,” he said. “There are assets and liabilities to be accounted for, numbers to crunch and compromises to be negotiated.”
But if someone is consumed by revenge or is otherwise distracted by anger, a person going through a divorce cannot focus on the numbers and is not prepared to negotiate in good faith, he said.
Further, when emotions are raging, a parent may take unreasonable positions concerning setting a visitation schedule, White said.
“For example, when the parties were `happily married’ and one parent consumed alcohol socially neither party thought anything of it,” he said. “But during a heated, emotional divorce, one spouse may now take the position that the child(ren) are unsafe with the parent who has always consumed alcohol socially.”
He said this newfound distrust or concern can cause a simple divorce to take many more months to be finalized — and cost many more thousands of dollars than necessary.
Are you considering divorce? See whether January is really the most popular month for divorce, and stay tuned for coming stories about alternatives to traditional divorce and the newest trends for divorce in New Jersey.
Have you been Bamboozled? Reach Karin Price Mueller at Bamboozled@NJAdvanceMedia.com. Follow her on Twitter @KPMueller. Find Bamboozled on Facebook. Mueller is also the founder of NJMoneyHelp.com.
These Are the 3 Most Dangerous Social Security Mistakes You Can Make
Social Security benefits are a lifeline many older Americans can't survive without in retirement. In fact, approximately half of baby boomers expect their Social Security benefits to be their biggest source of income in retirement, according to a survey from American Advisors Group.
When you're depending on your monthly checks just to get by during your golden years, it's in your best interest to understand as much as you can about how the program works. When you have a better understanding of exactly how your benefits are determined, you can make better decisions and avoid the common pitfalls that plague retirees.
Some mistakes are more harmful than others when it comes to Social Security benefits. These three are some of the most financially dangerous.
Image source: Getty Images
1. Not working at least 35 years
The Social Security Administration calculates your benefit amount by averaging your income over the 35 highest-earning years of your career. That number is then run through a formula to account for inflation, and the result is your basic benefit amount.
If you work fewer than 35 years, you'll have zeros entered into your equation to account for the years you weren't working. That can significantly lower your overall earnings average, which will also result in smaller checks.
The good news is that this also means you have the power to increase your Social Security benefits. Chances are you're probably earning a higher salary now than you were at the beginning of your career. So because the Social Security Administration only considers your 35 highest-earning years, if you work more than that, you'll be able to remove some of your lower-earning years from the equation. That creates a higher overall earnings average -- and bigger monthly checks.
2. Claiming Social Security too early
The number of years you work and the amount you're earning over those years will help calculate your basic benefit amount, or the amount you'll receive if you claim at your full retirement age (FRA). But if you claim earlier than that, you'll face a reduction in benefits.
For those born in 1960 or later, your FRA is 67 years old. Those born before 1960 have a FRA of either 66 or 66 and a certain number of months, depending on the exact year you were born. You can begin claiming benefits as early as age 62, but by doing so, your checks may be slashed significantly. For example, if you have a FRA of 67 and you claim at 62, your benefits will be reduced by 30% for the rest of your life. If you're depending on your benefits to make ends meet in retirement, a reduction that size could make your golden years a lot more challenging financially.
Now, claiming before your FRA may not always be a bad decision. If you lose your job or are forced to retire early because of health issues, for instance, you may have no choice but to claim early so you can afford to pay the bills. Or if you have reason to believe you'll live a shorter-than-average life, it may be wise to claim earlier to take advantage of your benefits while you're still relatively young and healthy. But if you're claiming early without realizing that it has a lifelong impact on your monthly benefit amount, that could be a big mistake.
3. Assuming that Social Security alone is enough to live on in retirement
For average earners, Social Security benefits are only designed to replace around 40% of your pre-retirement income. In other words, you're not meant to be able to live off your benefits alone in retirement. And the average check amounts to just $1,471 per month -- many households may find it difficult to get by, let alone live an enjoyable and fulfilling retirement, on that much money.
In addition, there's a chance your Social Security benefits may face cuts in the relatively near future. With so many baby boomers retiring (and living longer lifespans), the Social Security Administration has been paying out more in benefits than it's receiving in taxes from workers. To cover the deficit, it's been tapping its trust funds so that retirees can continue receiving their promised benefit amounts.
However, those trust funds are expected to run dry by 2035, according to the Social Security Administration Board of Trustees. At that point, the only money available to pay out in benefits will be what comes in from payroll taxes -- which is only expected to cover around 75% of anticipated benefits. That means if Congress doesn't come up with a solution before then, retirees could see their monthly checks reduced. That makes it all the more important to have some savings set aside in your retirement fund, because you may not be able to rely on your benefits as much as you think.
Social Security benefits are an integral part of your retirement plan, but it's important to make sure you know how they work and that you're not over-relying on them to cover all your expenses. When you're avoiding these mistakes and making smart Social Security decisions, your benefits can help you elevate your retirement lifestyle and enjoy your golden years comfortably.
I made a lot of money mistakes in my 20s, but these 5 will haunt me for years to come
Years from now, when I'm looking back on my 20s, I expect I'll wrap up everything that happened and file it under a section of my brain called "learning experience." It was a stretch of 10 years when I had more mistakes on my record than accomplishments.
I graduated college with a major (poetry) that had no logical next step, I moved back home to my parents' house and stayed far too long, I blew my savings on moving to New York City for a job that paid minimum wage, and I never got comfortable with the word "budget."
I also learned a lot of bad habits from the people around me. I had friends opening up credit cards on a weekly basis and maxing them out monthly, dipping into their retirement savings at age 25, and borrowing money from family members with no plans to pay them back. I worked at companies that were in the red, and they never paid their employees on time.
But of all the financial mistakes I made in my 20s, these five were the biggest and will continue to cost me money for years to come.
1. Keeping my money in a savings account with a low interest rate
I thought all savings accounts worked the same. You made money, then put some in a safe place until you needed it. While it sat there, it would grow a few dollars here and there because of interest. I was wrong.
After a year of dating my now-fiancé, we opened up about our finances and I showed him that all of my money was in a savings account at a certain bank with a 0.03% interest rate. His mouth dropped and he began explaining to me that there are plenty of other banks with savings accounts that offer interest rates well over 1%.
That means I could have been earning thousands of dollars more in interest every year than I was earning at the bank I had been loyal to for seven years. When I made the switch to a high-yield savings account, I went from earning a few hundred dollars a year in interest to making over three times that much.
If you don't know what the interest rate is for your current bank, give them a call. Ask if they can offer a higher interest rate and if they say no, research other banks that will. Some banks with the highest interest rates are online only, so if you're okay with not having a physical location to go to, you might want to make the switch.
2. Never asking for a raise
Before I started working for myself, I worked for four different companies in my 20s. While the jobs were all in different industries (from nonprofit PR to a tech startup) one thing remained the same — I never asked for a raise.
According to Salary.com, the average yearly raise for employees is around 3.3%. There were some years I didn't receive a dollar more, even though I had perfect marks and outstanding comments on my annual review. My failure to negotiate a higher salary and to stand up for the value I brought to the companies I worked for cost me thousands of dollars every year.
If negotiating your salary is a weak point for you, increase your knowledge on salary averages for your position and industry raise rates. Know that this data changes every year, so researching before you walk into the room will help you get paid the amount you deserve for the quality of work you provide.
3. Rolling my eyes at retirement
At the start of my 20s, I took on a very negative attitude toward planning for retirement. My theory was, why plan to retire when I can hardly pay my bills now?
With a mindset like that, it took me years to even open a retirement account and a few more years to contribute the amount I should every month.
I started my first full-time job months after I graduated college at age 22 but didn't open up a 401(k) until I was 26.
Those four years could have been a game changer to the health of my 401(k) considering my employer matched contributions, which meant for every dollar I put in, they'd match (up to a certain amount, of course). I missed out on thousands of dollars in my retirement fund because of a bad attitude
According to Investopedia, you should put 10% of your gross salary into a 401(k) to start. At the time, it would have been hard to do that and pay my bills, but I could have made it work if I was smarter about my money and stuck to a strict budget.
4. Busting all budgets
If you look in any notebook I have in my room or deep in the files on my computer, you'll find budgets that I started to put together but hardly ever stuck to.
When life got busy, I turned a blind eye to my money situation — until my credit card bill was sent to me. I quickly began spending more than I could afford, and a lot of the purchases were things I could avoid if I had a strict budget and better time management.
For example, I noticed that 65% of items on my credit card were related to food. I could have reduced my monthly spending by planning ahead and either meal prepping or hunting for local restaurant discounts.
Another big-ticket item on my credit card bill was rideshare costs, which could have been avoided in most cases. Taking a rideshare option was sometimes easier than riding the subway, but instead of costing $2.75 a ride, it cost me close to $20.
I learned that without a budget, spending can go rogue and you won't even know how much damage you've done until you see your credit card statement or your bank calls you to let you know you overdrafted your checking account.
Two things have helped me stay on track with my monthly spending. First, printing out credit card statements and thinking about how I could have avoided any of the charges and finding ways to plan ahead for the next month.
Second, hiding my credit cards and using cash only for one month to track spending and cut down on unnecessary items. Both tricks have helped me stick to a budget and not spend upwards of $1,500 more than I need to every month.
5. Opening and closing credit cards
Early on in my 20s, it seemed like every time I went shopping a sales associate at the checkout counter would ask me the same question: "Do you want to open up a store card to save you 20%?" When my bill was already higher than I planned on spending in the first place, my answer was yes.
Before I knew it, I had a lot of open credit cards — and a desire to close them all. I knew that opening credit cards could help my credit score, but only if I used them and paid them off immediately. But I wasn't aware that opening and closing them could hurt my score — and hurt it fast. I also made the mistake of closing cards I had a long history with, which made a huge dent in my credit score.
According to Credit Karma, closing a credit card won't impact your average age of accounts right away, but if you close a card that's older than your other cards, it could lower your average age of accounts after that initial period, which will lower your score.
While this didn't directly cost me a lot of cash, It did hurt opportunities where having a higher credit score would have helped me save money (example: leasing a car or an apartment).
Now that I'm in my 30s, I have vowed to never make these mistakes again. So far, I've worked on building on all of these lessons learned by meeting with a financial adviser, reading books on managing money, and learning from other people's mistakes, so I don't have to make any new ones this decade.
A financial adviser can help you make a plan for your money — and stick to it. Use SmartAsset's free tool to find a qualified professional near you »
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