When someone in Virginia decides to divorce, he or she may worry about the potential financial implications of a split. After all, the financial consequences of divorce can linger long after the emotional and practical entanglements have been sorted out. However, people can take action to help protect themselves from making costly mistakes when they end their marriages.
In the first place, it can be tempting to spend money after a divorce. People may want new clothes, new styles and new adventures to help them get over the divorce. However, it is important to be frugal when developing a new single identity. Major investments like new cars or homes may not be the best choice for a person adjusting to living on a single income. In addition, when people find it hard to make ends meet, they may think to turn to their investment accounts. However, cashing in an investment can be costly. It can carry significant tax or other penalties and can set people back from achieving their financial goals. Overall, it's better to look for ways to save rather than dipping into investments.
The same is true for 401(k) plans. Retirement funds are often divided in the divorce through a specialized court order called a qualified domestic relations order. People can take the distribution as cash or roll it into an IRA of their own. The cash might be tempting, but it could come with a major tax hit.
The process of divorce can be challenging on many levels, and that includes adjusting to a newly single financial life. A family law attorney may work with a divorcing spouse to plan for the future and reach a fair settlement on key issues like property division and spousal support.