Many of us tend to focus on the emotional damage that can accompany divorce. It is important to keep in mind that divorce can have a significant financial toll as well. Women tend to fare worse than men economically after divorce, with one government study finding that a woman’s household income might fall an astounding 41 percent after divorce – almost twice as much as the reduction generally experienced by men.
There are real and significant costs associated with ending a marriage, finalizing a divorce case, and establishing separate households. Fortunately, there are steps that you can take to establish financial independence and stability after divorce. The following are some of the most important.
Steps To Achieving Financial Stability After Divorce
1. Establish Separate Accounts
Moving forward after divorce means establishing a completely separate financial life. As a result, you should close any joint bank or investment accounts that you and your ex may have together, make sure that any joint credit accounts that you and your ex had been closed or the appropriate user is removed from the account, obtain a credit card in your name only, and make a list of your individual assets and debts.
When you open your own accounts, be sure to set up a savings, money market, or investment account where you can begin building emergency funds and achieving other savings goals.
2. Set a New Budget
Once your divorce is final and the dust has settled, it is time to set a new budget, which might look substantially different from your prior budget during the marriage. In order to do so, you should first determine your post-divorce income.
If you are working, find out exactly how much you will be making every paycheck, and do not forget to include income from alimony (maintenance) or child support. Next, determine how much you need to maintain the lifestyle you would like and see if the numbers work out.
You may find yourself pleasantly surprised with your post-divorce income or realize that you may need to find another job or cut financial corners in certain areas. For example, keep in mind that as a single person, you probably do not need as much space as you did while you were married.
You may be able to significantly reduce your housing payment and utility bills by moving into a smaller apartment or house. Once you have a budget that works, try to stick to it as closely as possible. It might seem easy to pay for things outside your budget with credit cards, but the balances will add up quicker than you might imagine, and you might not have room in your budget to add in credit card payments.
3. Avoid Crisis Spending
The time immediately after your divorce is over can be an extremely difficult time emotionally. For this reason, you should avoid making big financial decisions during this period. While it may be tempting to purchase that new car you have always wanted, move to a new city, or take an expensive vacation, you should hold off on these and other large purchases until you are in a more emotionally stable place.
One of the best ways to prevent yourself from engaging in crisis spending is to limit your purchases to things that are going to meet your basic needs – your food, shelter, clothing, and transportation.
4. Build Your Credit
Divorce can wreak havoc on your credit, and it’s important to start building your own credit profile so that you can truly live independently and finance large purchases like homes or vehicles. Start with being sure to pay your bills on time every month. As soon as you feel like you are comfortable with your new financial situation, open a credit card in your name and make sure that you pay it off each month.
Avoid applying for too much credit in a short period of time, however, as this can negatively affect your score. Finally, regularly check your credit score on a free site. Make sure that all of the information in your credit report is up to date and that debts are marked closed as you pay them off.
5. Seek Help from a Financial Advisor
As a newly divorced woman, you should certainly seek help from a trusted financial advisor who understands your situation. Even if you had a financial planner during your marriage, it might be a good idea to find a new one who does not know your ex-spouse.
You should start working on your retirement plans on your own immediately, and a qualified advisor will certainly have some options for you. In the event that there were retirement accounts that were split up at the time of your divorce, you should certainly look into a Qualified Domestic Relations Order (QDRO) that can allow you to move money out of retirement accounts without any tax consequences.
An advisor can help you start a new investment portfolio with a lump-sum payment or periodic payments you received as part of the divorce order.
Finally, if you have any questions about your legal or financial obligations or rights as part of your divorce, you should speak to a family law attorney in your area.