Divorce impacts many aspects of your life, from your emotions to your finances.
It can take a toll on not only your expendable income but also your credit and other assets.
Use these five tips to improve your finances quickly after your divorce.
Tips to Improve Your Finances After Divorce
1. Check Your Credit
One of the first things you should do when going through a divorce is to request a credit report from one of the major credit reporting agencies, like Equifax or TransUnion. Getting a credit report and finding out your credit score may seem like a daunting task, but in the long run, it will only help you. This will help determine how much work you will need to do to recover.
Severing financial ties with your spouse can majorly impact your credit, but luckily, building your credit can be fairly easy. The two easiest ways to build your credit include paying down any outstanding debts owed and making sure your bills are paid early, or at least on time. Ideally, you want your credit score to be above 700 — this will allow you to get loans and credit cards without paying high-interest rates. The higher your credit score, the less risky you look to lenders.
2. Set a Budget
One of the first things that you should do after finalizing your divorce is to set a budget. Most of the time, you are going from a two-income household to a single-income household. The difference in income can be a major change to your expendable income. Setting a budget is fairly simple and can have a huge impact on your overall financial well-being.
For starters, list out all of your expenses, whether it is basic bills like utilities and mortgages or alimony and child support. You want to have a clear list of all your recurring expenses each month. After listing out all of your expenses, find the total amount of money that is required to cover them all.
The next step in creating the perfect budget is to determine what your total monthly income is. Now take your total income and deduct your total expenses, the amount left over should be divided in half. Half should go into your savings account and half can go towards your spend on entertainment or other non-essential purchases. This can single-handedly help turn your financial situation around. Having amounts allocated to monthly expenses and savings can help ensure that you are not overspending.
3. Determining Your Assets and Moving Them Into Your Name
Determining your assets is an important step in the divorce process. Figuring out what belongs to you, what belongs to your spouse, and what belongs to both can seem like a reasonably scary task. However, it is actually pretty simple depending on the state you reside in.
First, you have to determine how the assets were purchased — whether it was with individual or joint funds. Anything that was bought with a personal credit card or money is the individuals to keep. Joint purchases are where it gets tricky. Typically, joint purchases include housing and other large cost items. Luckily, the court will help you determine who gets what assets. Once you determine what assets are yours, it is important to move them into your own name. Assets directly impact your net worth, which can help you receive other financial aid in the future, like personal lines of credit.
4. Close Joint Accounts and Open New Accounts in Your Name
Much like dividing and moving assets into your name, the next thing you should do to sever financial ties with your former spouse is to close joint banking accounts and open new accounts in just your name. This will not only help you cut financial ties with each other, but it will also help protect your money through the divorce process. When you open a new bank account, make sure that you disclose this information to your lawyer to make sure that your money is protected.
Make sure you research banks to confirm you’re getting the most bang for your buck. Each bank offers its own pros and cons. Things you should be looking for are banks that offer no-fees. Some banks even offer other perks like bypassing a credit check to give you a second chance at banking. As mentioned, divorce can have a direct impact on your credit, so finding a bank that offers a second chance at banking can be a huge win in eliminating some financial stress.
5. Create a Safety Net or Emergency Fund
Lastly, once you get established in your own finances, it is a good idea to create a safety net or an emergency fund. We suggest that you open an additional savings account at another bank and have a portion of your paycheck directly deposited to this account. Opening an account at a separate bank makes it slightly inconvenient for you to access your money; this way, there is less temptation for you to use it. It doesn’t have to be a large sum of money, but even putting away 10 to 20 dollars each paycheck will help ensure that you have some money set aside for the “just in case” moments.
With the stress of divorce, it can become very easy to let the simple things in life like your financial well being slide. Unfortunately, financial stress is inevitable during a separation, but there are so many solutions and resources available to help you get on track and improve your financial health. We hope you find these tips to improve your finances helpful and that you bounce back quickly after finalizing your divorce.
Kristen loves sharing tips that help individuals and families manage their finances and improve their financial wellbeing.