By: Goldberg Jones Law
Ending a marriage has a massive impact on almost every aspect of your life. In one fell swoop, marital status, living situation, the time you spend with your kids, and more changes drastically. One area where it often has a devastating effect is when it comes to money. The question of how to rebuild finances after divorce often arises.
Divorce comes with costs for filing, fees for hiring an attorney, expenses for mediation or going to court, lost wages due to taking time off work for appearances, and more. That alone wreaks havoc on a bank account.
Then there’s the division of property to contend with. You and your ex split up all of the share assets. Even though the goal is for each party to maintain a lifestyle similar to that enjoyed during the marriage, finances often take a hit. You may wind up on the hook for a mortgage or car payment, child support or spousal support may factor in, or it may be as simple as struggling to pay all the bills from a single paycheck for the first time.
This is the jumping off point for the next stage of your life. No one wants to start off deep in an economic hole. Here are eight strategies to help rebuild finances after divorce.
1. INVENTORY YOUR FINANCES
The best place to begin to rebuild finances after divorce is to take stock of what you have. Catalog your income, all of your expenses, assets, and debts. You can use a spreadsheet, a notebook, or whatever tool you’re most comfortable with. List all open accounts, assess any investments, and collect what remains of your economic life after divorce. This provides a comprehensive picture of your finances.
2. CREATE A BALANCED BUDGET
Once you have a handle on your assets and obligations, the next step to rebuild finances after divorce is to balance your budget. Monthly expenses change after a marriage ends. Knowing what comes in and what goes out is key—it’s important to track your expenses and be aware of how much you spend, and where. You can use a simple Excel spreadsheet, but there are many online tools and apps like Mint, Wally, and GoodBudget available to you as well. And more seem to pop up every day.
Having a financial safety net is hugely important now that you’re single. Many experts suggest having a cushion of at least 3-6 months worth of living expenses set aside just in case. This provides a buffer in case of emergency. That’s great if you can pull it off, but that’s a substantial chunk of change. Still, it’s vital to set aside what you can in case of the unexpected. Many banks and credit unions offer free initial consultations with financial planners. This may be an option worth exploring to assess your current finances and establish goals to rebuild your finances after divorce.
Establishing priorities is one way to rebuild finances after divorce. What are your most important expenses? Where can you trim the fat? Do you need to build up your retirement or invest in your children’s college fund? Figuring out what’s most pressing and important helps provide an economic roadmap and show you where you need to focus, and where you don’t.
5. BUILD/RE-BUILD CREDIT
Your credit score influences everything from applying for home and car loans to renting a new house to career opportunities. It can take a hit when a marriage ends, so it’s important to keep an eye on it and rehab it when that becomes necessary. Check your credit report annually. It shows all of your outstanding debts, payment history, and lets you make sure there’s no unauthorized activity. There are many ways to maintain and elevate your credit score, which is important to help rebuild finances after divorce.
6. EXAMINE YOUR TAXES
One area people often fail to account for in divorce is taxes. Some assets received in the division of property are subject to taxes and fees. But the biggest way they impact your future is in your filing status. You’re no longer married, after all, so you don’t get to file as such. Moving forward, you may want to change your withholdings or even alter your investment strategy depending on the impact. Knowing how your taxes change is a key step to help rebuild finances after divorce.
7. MAKE A CLEAN BREAK
Once the divorce is finalized, it’s important to make a clean break moving forward. Close any joint accounts. If your spouse runs up debts on a shared credit card, that may hurt your credit or creditors may even come after you for payment. In the division of property, it’s common for one spouse to get things like a car or home. Divorce doesn’t automatically alter any financial agreements you entered into while married. Make sure to remove your name from any applicable loans, mortgages, titles, or deeds. If your ex misses payments and your name is still on the paperwork, it can come back to haunt you. No one wants to star in a hole trying to rebuild finances after divorce.
8. HAVE A PLAN TO REBUILD FINANCES AFTER DIVORCE
Making a plan goes a long way towards helping rebuild finances after divorce. Take any of these strategies, among many others, and draw a roadmap of where you want to go and how to get there. Some people accomplish this on their own, while others enlist the services of financial professionals. It may seem like a daunting or overwhelming task, but it’s helpful to have a concrete plan to look at.
There are many steps that go into trying to rebuild finances after divorce. These are just a few. What you can accomplish depends on your resources, abilities, and circumstances. But you don’t have to be in a monetary hole forever. Again, it may be in your best interest to consult a financial planner or other professional.