Divorce can be a financially draining event, and many people have a difficult time financially after divorce. Recent studies have shown that women are now faring better financially after a divorce, primarily because more women are now working outside the home and the male/female income gap has continued to narrow. Meanwhile, divorcing men may be experiencing more of a financial setback than in the past, also because more women are working outside the home. Since more women are working outside the home and earning more money, many divorcing men lose that additional income that was brought in by their wife. That being said, women with children still have a significant financial disadvantage after divorce; statistics show that 60% of single mothers experience “economic insecurity” after divorce.
Regardless of gender, though, there are some things you can do that will help you bounce back financially after a divorce.
Educate yourself on your investments, insurance, and retirement planning. In many situations, the primary breadwinner focuses on the “financial big picture”, which usually means investments, 401ks, and retirement plans. The other spouse may be responsible for bills or knowledgeable about bank accounts, but tends to not know as much about the financial big picture. Unfortunately, that means they usually suffer most financially, so it’s important to get up to speed quickly after divorce and have a plan.
Establish personal credit and check your credit report. Many couples have joint credit cards and bank accounts when they are married, which is fine. However, depending on what age you were when you got married, and how long you’ve been married, you may not have a strong personal credit history, so it will be important to establish and build credit in your own name after you are divorced.
In addition, it is important for everyone to check their credit report to ensure that their debt has been divided and allocated correctly by creditors, in line with the divorce settlement. If there are any mistakes, it’s critical to rectify these as soon as possible.
Create a realistic budget. In many cases, it is difficult, if not impossible for divorcing spouses to maintain two separate homes and keep the same standard of living that they had before. Therefore, it can be extremely helpful to create a budget that tracks a detailed list of expenses, including rent/mortgage, food, car payments, utility bills, credit card payments, etc. It’s also important to factor in any transitional expenses, if one spouse will be returning to school or taking any type of training to return to the workforce. Lastly, don’t forget to include saving as an item in your budget, which we will talk about next.
Build up a savings account. Building up a short-term savings account is important, as well as saving for the future. And by the future, of course we mean retirement. Many people have no retirement savings after a divorce, or a severely depleted retirement plan after divorce, so it’s a good idea to get started right away after divorce – it’s never too late to start saving! In regards to short-term savings, or “emergency savings” accounts, most financial experts will say individuals should have a cash savings that equals at least 3-6 months of income. That can terribly intimidating for a lot of folks, but a good budget can help you build up to that figure.
Separate completely financially. It’s always surprising how many folks leave loose ends financially after a divorce. Close the joint credit cards, transfer car titles/registrations, and any other assets that you may have acquired from the divorce settlement. Change the home and auto insurance policies, and update wills, health insurance plans, life insurance, and any financial beneficiary information for your investments.
We understand this all may sound overwhelming, and seems like a lot of work. To avoid being financially crippled, though, it’s important to plan, be proactive and realistic, and take steps to securing your financial future. We can recommend financial professionals if you need assistance – don’t hesitate to call us if you’re feeling like you need help with these steps!
Disclaimer – The materials contained in this blog have been prepared for informational purposes only. The information contained is general in nature, and may not apply to particular factual or legal circumstances. In any event, the materials do not constitute legal advice or opinions and should not be relied up on as such.