An expensive divorce could leave you low on money and with no clue how to move on with your life. In this post, we’ll show you how to rebuild your finances, refresh your budget, and even get rid of any pre-existing marital debts.
Reviewing Your Finances
With a balanced marital settlement agreement from LawDistrict, you’ll know exactly which debts and assets are yours. This is the time to step back and see what you have to your name — this could include:
- Cash and savings accounts
- Retirement accounts, such as a 401(k)
- Real estate
- Your personal property
- Any enduring business interests
You should also check your credit score online; even an amicable divorce massively affects your situation and loan eligibility. A divorce means rebuilding your whole relationship with money and becoming more independent. This can even include working hard to refresh your credit score.
Adapting Your Post-Divorce Budget
After a divorce, you’ll rely on just your income to get by unless you’re eligible for child support or alimony from your ex-spouse. You’ll likely have to cut a few things out, but there are still ways to enjoy your usual comforts. Here are our post-divorce budgeting tips:
- Make a realistic balance sheet of incomings and outgoings
- Build an emergency fund with 3-6 months of living expenses
- Seek financial support (possibly from your ex-spouse) if eligible
- Review your subscriptions and reduce discretionary spending
- Be honest with yourself about what you need vs. what you want
- Shop at discount supermarkets and cook your food in bulk
Adjusting to a new financial reality is never simple. However, if you still have a consistent source of income, you should be able to adjust.
Separating Your Accounts
You might still share a joint account with your ex-spouse in the aftermath of a divorce. If so, you must close it or remove any money not for shared expenses, such as childcare.
If you no longer have an account of your own, set one up. You should also consider a “secured” credit card — this helps you rebuild your credit score over time.
You should also update your financial documents to reflect your divorce and remove your ex as a beneficiary. Similarly, if you were on a shared insurance plan, you’d only have a few months to find a new one.
Moving or Keeping the Home
Finding a new place is a major expense (and headache) for anyone undergoing a divorce. This is especially troublesome if you own a home with your ex-spouse. You might be lucky enough to keep it in your name, but they may angle you to sell it and split the profits.
Even if you get the home, it might be “underwater.” This means the home has negative equity — and you’ll owe more on the mortgage than it’s worth. Regardless, you might struggle to afford to keep up with payments on a single income stream, even with a well-paying job.
If you can keep (and afford) the property, you should ideally already have a mortgage before the divorce is final, or your bank may deny you. You can always turn it into a rental property to avoid selling at a loss or leaving one partner to struggle with the original mortgage alone.
Navigating Child Expenses
When you have custody of your and your ex-spouse’s child or children, consider asking for child support. This helps you maintain financial stability while accommodating many extra costs. The support is mainly for biological children but also covers stepchildren your ex-spouse adopted.
You might also choose to balance this concern with the aforementioned housing issues, such as by “birdnesting.” This is when your child lives in the marital home full-time, with you and your ex regularly switching between the property and another single-person dwelling.
Apply for tax benefits that may soften the blow of being a newly single parent. For example, you can get a Child Tax Credit and lower your tax liability by up to $2,000 per child. If you need help looking after a child under 13, you can also get a Child and Dependent Care Credit.
Dealing With Debts
Once you list all your debts, divide them into “good” and “bad” debts. The former is any debt that can help you long-term, such as a house mortgage. Bad debts won’t help and usually come with high interest rates.
Prioritize your bad debts, especially high-interest ones. You can also contact creditors to explain your situation — some might be willing to let you refinance. Divorce also splits any marital debts according to your state’s community property or equitable distribution laws.
Final Thoughts
When your divorce is finalized, it might take some time before you’re fully back on your feet. The right settlement, however, ensures you won’t start from scratch. Once you get your own account in order, you can arrange accommodation, childcare, debt repayments, and more.
