Divorce can be a jarring and life-altering experience. As you work to adjust to your new post-divorce life, you may feel like aspects of your life are spinning out of your control. This can be especially true of your finances, which have likely undergone a dramatic change in the wake of your divorce. Whether you were financially dependent on your spouse during your marriage, had to sell your house, or are now responsible for paying spousal support and/or child support, divorce can cause a ripple effect of changes in your life that have a lasting impact on your financial future.
To regain stability and security in the wake of this upheaval, it is important to take proactive steps to rebuild your finances. Taking the time and energy to assess your financial situation – from your budget to your retirement plan to your children’s college funds – can be an intimidating prospect, but it will pay dividends down the line and help to reduce your stress in the here and now.
Facing the end of a marriage and the financial repercussions that come in its wake is never easy, but these changes also present a new opportunity to take control of your money and realign your priorities as an independent person. But where do you start? As you navigate this new stage of your life alone, here are 5 steps that can get you started on setting yourself up for future success:
#1. Figure Out Where You Stand
Taking stock of your financial situation after a divorce is key to creating a smart plan for the future. Get an accurate read on where you are by taking some simple steps: First, you should be sure to check your credit score. If you and your spouse shared credit cards, your divorce will not automatically separate those accounts. You will need to call each and every one of your credit card companies to let them know that you or your spouse need no longer be a secondary cardholder. You should also be sure to follow up and confirm this information with the major credit bureaus and let them know of any changes to your legal name.
Next, you will want to get a good picture of your current income and expenses. What is your monthly income now when you take into account spousal and/or child support? Do your expenses exceed your income? Do you have enough of a cushion each month to save or invest or are you living month-to-month? If your expenses are too high, are there ways to cut down on non-essential expenses – even for 3-6 months while you build up an emergency savings account or pay down debt? Or could you increase your income through a side hustle? Either way, creating a budget for your monthly expenses and tracking those expenses over time will help you feel more control over your finances.
Finally, make sure you have an accurate understanding of your current assets and debts – from property to retirement accounts to student loan and credit card debts. This will give you a sense of your current net worth. From there, you can begin to make plans about where you’d like to eventually be in the future.
#2. Adjust Your Financial Priorities
After the upheaval of divorce, it is vital that you reassess your financial priorities. While this can be challenging and sobering, especially if you were the lower-earning spouse, your newly single status can provide choices and flexibility that you may have lacked during the marriage.
Only you can decide what your financial plan should look like, but you’ll want to consider what aspects of your current and future life are most important to you. For instance, creating an emergency fund with enough to support you and your dependents for 3-6 months could provide you with peace of mind. You might also consider what you have saved for your own retirement and how you want to build your nest egg, especially if your previous plans depended either in part or wholly on your spouse’s retirement contributions.
#3. Pay Off Debt
If you came out of your divorce with significant debt, one of the smartest moves you can make is to prioritize paying off that debt as aggressively as you can. This doesn’t mean you shouldn’t work toward other financial priorities as well, but debt can be an especially stressful burden to bear. By paying off debt as quickly as possible, you can minimize the chance of paying unnecessary interest or late fees, or even help avoid defaulting on payments. Paying off your debt can also allow you to regain a feeling of control over your personal finances.
#4. Revisit Your Insurance Policies
This is also an excellent time to review all your insurance policies. You should make sure that your insurance policies match your current lifestyle and financial needs. For example, if you previously owned a shared car but now intend for each party to have their own vehicle, car insurance policies may need to be re-examined and modified. Similarly, you will need to purchase your own health insurance or sign up for insurance through your employer if you were previously on your spouse’s medical plan, or you may need to add your children to your current plan. Life insurance policies should be evaluated after a divorce as well to ensure that your named beneficiaries reflect your wishes.
#5. Focus on Your Career
It is unfortunately not uncommon for one person to come out of a marriage less financially secure than their partner. This is especially true if one partner was financially dependent on their spouse during the marriage. If this is the case for you, pivoting your focus to your career can not only be a way to work toward financial independence but also provide a sense of drive, direction, and meaning as you rebuild your life.
This may mean returning to school to further your education or it may mean investing in yourself by moving toward career advancement. Developing yourself personally and professionally can provide a sense of satisfaction and accomplishment while also helping you build financial security for yourself and your family.
If you are going through a divorce or have recently gone through one, it can be difficult to know where to start. At Cynthia Tracy, Attorney at Law, P.C., we understand how challenging this period of your life can be and we are here to help provide you with the legal support you need.
Whether you are still negotiating your divorce or you need help enforcing or modifying your current settlement agreement, you can reach out to us online or call us at (281) 612-5443 to schedule an initial consultation.