The divorce is finally over, and you have made it through one of life’s most stressful events. You receive a closing letter from your attorney with a copy of your Judgment of Dissolution of Marriage. How did the divorce affect your financial life? Was it financially damaging to you and your lifestyle? Although your income remains the same post-divorce, your expenses may have significantly changed. If you were the primary wage earner during the marriage, your expenses may now include child support and/or spousal maintenance. If you were not the primary wage earner during the marriage, you may have received half of the family’s assets including bank accounts, securities accounts, and retirement accounts. But now you may be relying on your former spouse to pay you support to be able to pay your monthly expenses. It is a lot to think about, but you can rebuild your financial security by making a few changes and following through with sound financial decision-making.
Below are 7 tips to help you move forward financially post-divorce.
1. Create a Monthly Budget
During the divorce process, you had to complete a Statement of Income and Expenses for the Court. Now that you are divorced, you need to go back to that document and learn what your actual net dollars available will be from all sources each month. Using that amount as the maximum amount you can spend per month without having to use savings or credit cards to get by, look at the expenses you listed and determine what are “needs” and what are “wants”. This is a difficult exercise, but you need to figure this out and focus on the needs to be met before continuing to spend on the wants at this time. It may be necessary for you to have a modified lifestyle after divorce to avoid overspending and having a financial crisis. By using the Statement of Income and Expenses, you can take the first step toward financial security by making sure your monthly expenses don’t outpace your net monthly income from all resources.
2. Consider Getting a Better Job
When it was two spouses contributing toward the monthly expenses, your current job may have been all that was financially necessary. However, now that you are a one-income household, you need to determine if getting a better job is necessary. If you are eligible for more hours at work, consider taking those extra hours to increase your cash flow. If there is no ability to increase your income at your current job, then start to look for a new employer to see if you could be earning more while working the same number of hours. If you don’t want to leave your current employer but need additional income to pay expenses or health insurance benefits, consider getting a second job. Maybe you can do side or freelance jobs that would provide extra income. Being divorced, you may only have your children half of the time which would allow you to work more or go back to school to improve your resume and obtain a new job or a promotion from your current employer.
3. Sell Your House
The current housing market is seller’s market. Look around the house. Do you need to remain in the former marital home? If not, consider selling now to take advantage of a profit that may not be achievable in the future. How large of a house do you need for your post-divorce life? If you sell and move into a smaller house, would this provide you with more financial flexibility? Consider what you could save by having a lower monthly mortgage, less real estate taxes, and less of a house to maintain and repair. Would you be better served by moving into an apartment or rental property? If you are spending a lot of money each month on maintenance and repairs of your house, moving into a rental property eliminates these costs and they would be paid by your landlord.
4. Know Your Credit Score
Go to annualcreditreport.com and see what is on your credit report. Then go and obtain your FICO score. Post-divorce you need to know this information so you can successfully apply for a mortgage, auto loan, or personal line of credit. You will also learn how the divorce affected your credit score. Take the time to verify that all joint debts have been separated and that your name has been removed. Why? Because creditors don’t care if your former spouse was ordered to pay a debt. If your name is still on the debt, then the creditor will come after you as well. If your former spouse pays late each month and your name is still on the debt, then your credit score will be affected.
5. Learn How Much You Will Pay in Taxes
You need to look at your withholdings and make sure they have been adjusted for your new filing status as a single individual. It is critical to take this step with your employer to avoid receiving an unwanted tax bill each April. If your monthly budget is tight, consider how a big tax bill would affect you. Also, keep in mind that maintenance payments are not currently considered income to you and deductible by your former spouse; therefore, your tax bracket will not be affected by any monthly support being received.
6. Create a Plan to Pay Off Debt
It is common for a divorced individual to be in debt due to the legal fees and costs incurred during the divorce process. You may have already been in debt from student loans or credit cards that was being paid off each month. Taking the time to sit down and create a plan to pay off each debt is critical to knowing what lifestyle you can afford post-divorce. Whatever amount of net income is left over each month should be used to pay off debt as the interest rate attached to the debt is increasing your amount due each month. The quicker you can pay off debt the less likely you are struggle financially post-divorce.
7. Don’t be Too Proud to Ask for Help
If all of this is too much for you to handle, talk to someone who is an expert in what you need help with and get sound advice. If you have friends or family members that were in a similar financial situation, ask them to help you. Financial loss and uncertainty are normal worries post-divorce, but that doesn’t mean you have to accept it and deal with it alone. Talk to someone who can advise you on how to maintain the correct budget so you can avoid missing any payments and damaging your credit score. Staying out of debt and finding the best way to manage your net income each month is your post-divorce goal. Seeking professional or family advice will help you reach your goal.
Should you need the advice of an experienced divorce attorney or have questions or concerns about your situation, know that we are here to help and ready to discuss those issues with you.