Financial Impact From Divorce
The financial impact from divorce is real. From getting good legal advice and organizing all your documents to moving out and finding a place to live, a fresh start for the newly divorced is not always easy—especially when you start adding your finances into the equation.
In most divorces, both spouses’ quality of living plummets in the first few years right after. Why? Because the same cumulative income and assets must now sustain two households rather than one. The thing is, most people are neither financially nor emotionally prepared for this outcome.
So, what can you do to prepare for the inevitable? We’ve listed a few ideas and tips below to help you minimize the financial impact of divorce and take control of your finances.
1.Talk To An Expert
Remember that you don’t have to figure out your finances alone. Besides, you’ve most likely consulted with an attorney to help you through the legal complexities and financial impact of divorce.
So it only makes sense to entrust your financial challenges and troubles to a financial counselor. Given your newly single status, a financial advisor can assist you in setting new financial goals, developing a budget, and planning for future expenses and retirement.
2.Gather All Your Important Documents
As you update your personal details, such as marital status, name, and residence, you’ll need access to your documents and records. This may include wills, social security cards, powers of attorney, retirement and investment account statements, insurance policies, credit card statements, mortgage statements, loan paperwork, and bank account statements.
Check your most recent tax return for a list of all of your assets and the documents that go with them.
3.Close All Joint Accounts
Cancel and close all joint accounts with your ex-spouse if you haven’t already. Joint accounts that remain open are liabilities that might come back to haunt you. The last thing you need is to be responsible for your ex-spouse’s card debts or bank account overdrafts. Close these accounts ASAP! You want to avoid any negative financial impact.
If you have any balance on an account that you can’t pay off (such as a credit card), let the card company know that you want to suspend the account and prevent future charges. Confirm that the account can’t be reopened or reactivated.
4.Open Brand New Accounts
Applying for new credit cards may make sense before canceling joint accounts, depending on your situation. For example, if you have bad credit and don’t have an emergency fund, acquiring a credit card should be your priority.
Not everyone’s a fan of using credit cards, but you have to understand that a lot can happen in the short term. Especially when someone doesn’t have enough money to pay rent, eat, or get medical treatment. After a divorce, you may require a small bridge loan to help you get back on your feet.
A credit card might serve as a temporary solution. Aside from that, you can also opt to create new bank accounts, investment accounts, and other financial accounts. Make a note of all the accounts you had when you were married and try to replace them as quickly as possible.
5.Rework Your Budget
It’s a significant change to shift from a two-income household to a single-income-that is a major financial impact from divorce. This is a whole new financial reality that you’ll need to face. You’ll have to make sure your budget reflects your new financial situation because sticking to your previous spending patterns might rapidly lead to financial ruin.
Calculate how much money you’ll have coming in after the divorce and set aside most of it for essential expenses. This can include utilities, groceries, mortgage, and car payments.
You’ll need to make some big changes if you don’t have enough money to maintain your current standard of living while remaining out of debt and saving for retirement.
Making these changes sooner rather than later will help you avoid spending as you did in the past and possibly jeopardize your financial stability. If you can’t afford some necessary payments, you may have to sell the marital home or downgrade to a less expensive vehicle.
6. Set New Financial Goals
You’re on your own now, so it’s the perfect time to set new financial goals and make plans to achieve them.
Now that you’re divorced, your future will look different than what you’ve already imagined. Since you no longer have a spouse’s salary to fall back on if something goes wrong, consider saving for retirement and building an emergency fund. Also, don’t forget to set some fun goals for yourself to have something to look forward to. A trip once in a while wouldn’t hurt!
When it comes to your financial goals, be as detailed as possible. First, start with the basics, such as paying off your divorce debt or rebuilding your emergency fund. Then, figure out how much money you’ll need to spend toward these monthly goals. After which, use your budget to set priorities for achieving your goals.
Post-Divorce, Your Finances Will Recover
Don’t you ever lose hope! It seems like the challenge of financial impact from divorce keeps getting harder—but rebuilding your financial life after a divorce is possible. Just apply the ideas and tips we’ve listed above to your life, and before you know it, you’ll be in a better financial position and have a brighter future to look forward to.
Need a little help with the whole divorce thing? We at DivorceHarmony provide mediation, coaching and no court divorce to guide you with everything you need. Schedule a consultation with us today!