How to Rebuild Your Finances After a Divorce

 

No one goes into a marriage planning to get divorced. Unfortunately, it happens — And it often it’s a tough financial blow.

I got married for the first time when I was 24. I thought I had my shit together — Marriage, house, and a sizeable household income. 

Less than two years into the marriage, I found myself completely undoing everything I had built over the past several years. 

People often talk about the emotional toll that a divorce takes, but the financial one was a lot harder for me. After all, I knew almost nothing about finances and found myself thrown into the deep end. 

The next year was one of a lot of learning and a lot of rebuilding. I had to educate myself about all things budgeting personal finance, and then use the information I was learning to completely rebuild my finances. 

If you’ve been through this or are currently going through this, I see you and I know how you’re feeling. In this article, I’m talking right to you and teaching you how to rebuild your finances after a divorce. 

 

How to Rebuild Your Finances After a Divorce

 

How divorce affects women

 

Before we talk about how to rebuild your finances after a divorce, let’s talk about why it’s so important that you make this a priority.

First of all, divorce is expensive. As if financially starting over on your own wasn’t bad enough, add on the fact that the average divorce costs around $15,000. I was incredibly lucky that mine wasn’t that pricey, but it’s a reality for way too many people. 

Another ugly truth that it’s important for us to talk about is that divorce uniquely affects women.

We’re still living in a world where men make more than women, and 69% of husbands make more than their wives. So when a couple gets divorced, the woman’s household income drops more than the man’s. 

I don’t know about you, but I find those numbers horrifying. And those numbers are exactly why these lessons are so important!

 

Gather your support squad

 

If there’s one thing I wish I would have done differently during my divorce, (there are actually a lot of things I would do differently, but if I had to pick just one) it would be to gather my support squad right away. 

Divorce sucks, and you need your support system more than ever. But more than emotionally, they can be there for you financially. 

I’m not saying you need to ask people to help you financially, but people may be able to offer insight. There are plenty of people who could have offered personal insight on the topic, and I didn’t take advantage of those resources. 

Another member of your support squad should also be an attorney. When my ex-husband and I started the divorce process, we promised things would be amicable and that we’d split things down the middle without attorneys. Needless to say, things did not remain amicable and I got a lot less than half of our assets. Even in the friendliest of divorces, hire an attorney

 

Audit your financial situation

 

It’s safe to say that your finances post-divorce look a heck of a lot different from your finances pre-divorce. For that reason, your first course of action should be an audit of your entire financial situation. 

First, take stock of the amount of your assets. Depending on your situation this might be a home or car from your marriage. It also hopefully includes cash in the bank. 

Next, count up your debts. Unfortunately, many people come out of a divorce with more debt than they started. It’s best to face this head-on. 

Finally, add up your monthly income and your monthly expenses (including debt payments). Hopefully, your income is more than your expenses, but if not, we’ll deal with that too. 

 

Set up your financial plan

 

Now that you’ve done an audit of your entire financial situation, it’s time to make your financial plan. Your financial plan is going to look awfully different from the one you had when you were married, so it’s best to start from scratch. 

Here’s what you should include in your plan:

  • Your monthly budget. Adjust any expenses as needed to make sure your expenses are less than your income. 
  • Your debt payoff plan. If you’ve got debt, then you also need a plan to pay it off. And paying the monthly payments is rarely a good plan.
  • A savings plan. We’ll talk later about building an emergency fund, but just know, you need to have a savings plan. 

 

Update your documents and accounts

 

After your divorce, be sure to allocate some time to update all of your documents and accounts. First, this might mean letting your insurance companies know about the divorce. If you and your spouse shared a health insurance plan, one of you may need to sign up for a new one.

Next, be sure to update your beneficiaries! I’m embarrassed to say that it took me a solid year to change the beneficiary on my life insurance policy — my ex-husband would have gotten a nice surprise if anything had happened to me! Be sure to check your beneficiaries on other accounts too, such as any retirement accounts. 

In some cases, getting someone’s name off a loan might mean refinancing. That was the case with my car loan, and it’s probably the case with others as well. 

If your divorce involves a name change, then, of course, you’ve got a whole lot of extra work to do to change your name. Change your name with the Social Security Administration, and then be sure to change your name on all of your accounts. 

 

Be okay with downsizing

 

For most of us, divorce means a pretty drastic reduction in household income (in my case it was a roughly two-thirds reduction. And when you’ve got less money, you’ve gotta downsize. 

The first big downsizing move I made was to move from our three-bedroom house to a studio apartment. At first I thought it would feel way too small, but it was actually the perfect size for just one person! Super easy to clean and very homey. 

The other downsize I had to make was my monthly car payment. My ex-husband and I had purchased my car together, and the monthly payment was based on what the two of us together could afford. 

So when it was just me making the payment, I couldn’t swing it. 

At that point, I was faced with two choices. I could sell the car and downsize to something cheaper, or I could refinance. I ended up refinancing my loan and cutting my payment in half while also getting a lower interest rate. 

Downsizing is going to look a bit different for everyone, but it really comes down to getting your monthly payments to a place where they fit into your new budget. 

 

Build up your emergency fund

 

Literally one of the first things anyone should do after a divorce is build up an emergency fund. If you’ve already got an emergency fund, make it bigger. 

Here’s the thing about going from a two-income household to a one-income household. If you lose your job or source of income, you’re now a zero-income household. 

When you’re married and both bring in income, there’s an extra safety net in that the other spouse would theoretically still be bringing in monthly income. That just isn’t the case when you live alone. 

So while I think saving three months’ worth of expenses is a good starting point when you’re married, a single person should aim to save twice that. 

I know this doesn’t happen overnight and if someone had told me this right after I got divorced, it would have seemed absurd. 

At the very least, you can start putting little bits away now until you can ultimately reach that goal of six months of expenses. 

 

Cut back on personal spending

 

When you’ve got a lower household income, you’ve got less wiggle room in your budget for discretionary spending. While married-me wouldn’t have given it a second thought to go out to lunch or order my favorite takeout, divorced-me was careful to double-check the budget first. 

I’m not saying you can’t spend money on yourself. I think that after a divorce more than any other time we could use some pampering. 

But at the same time, we have to be realistic. If you can’t fit the same amount of discretionary spending into your budget as you once could, figure out where you can cut back

 

Seek out personal finance education

 

Probably the best thing I did to help rebuild my finances after my divorce was to immerse myself in personal finance education. I was determined to figure this money stuff out, so I threw myself into every resource I could find. I read blogs, read books, listening to podcasts, read financial news, and just about everything else you can think of. The year after my divorce was probably more educational than my entire four years of college for that reason! 

If you’re newly divorced (or not) and looking to up your personal finance game, here are some of my favorite resources:

 

Look for ways to increase your income

 

Listen, divorce sucks for a lot of reasons. But it also has its silver linings, one of which being that you now have a lot more free time. And while more free time might not seem like an upside for everyone, it’s a fantastic opportunity to increase your income!

I was lucky in that I already had my blog up and running when I got divorced. As a result, it was easy for me to use it to make some extra money. 

Even if you don’t already have a side-hustle in place, you can easily get one up and running! 

There are so many options out there to help you make extra money. Here are some of my favorite ways to make an extra $1,000 (or more) each and every month

Increasing your income has to freaking many benefits. First, it can help you to quickly pay off any debt you accrued during the divorce — I ended up having to put a lot of expenses on my credit card at first, and having a side hustle was a lifesaver.

Having a side hustle can also help you to build up your emergency fund, create some extra wiggle room in your budget (for those of you missing your discretionary spending), or help you save for future financial goals

 

Know that you can and will rebuild

 

Having gone through a divorce myself, I know how impossible it can feel to build your finances. You look at your much-smaller household income and the amount of debt you accrued over the course of the divorce, and it literally feels insurmountable. 

But I promise you that it is not impossible. You can and you will rebuild, and someday you’ll find yourself in a much better place both financially and emotionally. You got this!