We won’t sugarcoat it: divorce is difficult. On top of big changes in your personal life, you’re also dealing with significant financial challenges, like splitting assets, taking on new bills, and paying legal fees.
Let’s explore some strategies for managing money after divorce to help you clear these hurdles—without pulling your hair out.
5 Steps for Managing Money After Divorce
Managing money after divorce isn’t just about cutting expenses—it’s about rebuilding a stable financial foundation. These steps can help you regain clarity, control, and confidence as you move forward.
1. Create a Budget
If you didn’t have a budget before, now’s the time to make one. If you already have one, you’ll definitely need to update it. An organized spending plan that takes your post-divorce circumstances into account is a must-have.
Here’s how to make an updated budget:
- List your income sources: List every income source you can rely on going forward, such as your paycheck, side gigs, and any support you receive.
- List all expenses: Add up your current fixed costs, like your rent or mortgage, utilities, groceries, transportation, insurance, childcare, and healthcare. You may need to include temporary expenses, such as legal fees or moving costs. Then add your current discretionary spending for line items like entertainment, travel, gifts, and shopping.
- Pick a budget framework: After getting a better picture of your finances, it’s time to rework them with a budgeting framework. For example, 50/30/20 budgeting is a helpful percentage-based approach that allocates every dollar into buckets: 50% for needs, 30% for wants, and 20% for savings.
2. Attack Debt
Divorce can leave behind a tangle of loans, credit cards, and joint obligations, which should make handling debt after divorce your top priority. Start by:
- Listing everything in one place: Create a spreadsheet or use a debt-tracking app to log balances, interest rates, minimum payments, and whose name is on each debt.
- Separating joint debt fast: If possible, refinance or transfer balances into your own name so you’re not relying on an ex to make payments. This step is critical for truly resetting finances after separation.
- Choosing your payoff method: There are two main ways to pay off debt. The avalanche method focuses extra payments on the highest interest rate first, which saves more money in the long run. The snowball method pays off the smallest balance first, which is great for seeing quick wins and simplifying your finances.
- Automating payments: Set autopay for minimum debt payments, and then make extra payments on payday. This reduces late fees and helps you steadily chip away at debt over time.
- Negotiating and consolidating: Call creditors to ask about hardship programs, lower APRs, or settlement offers. Explore personal loans or balance transfer cards to cut interest costs.
3. Save (Even A Little Bit)
Money’s probably tight right now, but setting aside something each month—even if it’s only a little—can save you from unexpected expenses. You never know when an extra $100 could make or break your finances.
- Start with an emergency buffer: Set a goal to have between three and six months of expenses in liquid savings. This small cushion can prevent unexpected bills from derailing your finances after divorce.
- Automate small contributions: Schedule transfers to savings on payday so you never see the money leave your account. Commonly known as “paying yourself first,” this helps you stay consistent over time.
- Use separate accounts for clarity: If you struggle with saving, consider opening different accounts for each goal. For example, you might open dedicated savings accounts for car repairs or child expenses to prevent yourself from dipping into those buckets for other reasons.
- Leverage round-up tools and cash-back apps: Small, passive contributions can add up over time and make managing money after divorce less overwhelming.
4. Monitor Your Credit
If your credit took a hit after the divorce, here are a few tips to help you recover:
- Pull reports regularly: Use AnnualCreditReport.com to check all three bureaus (Equifax, Experian, TransUnion) for free. You can pull this report once a year to monitor your progress over time.
- Look for lingering joint accounts: Divorce doesn’t automatically remove your name from shared debts. If anything is still jointly held, close it or refinance it into one person’s name so you’re not legally responsible for an ex-spouse’s spending.
- Dispute errors fast: If an account shows inaccurate information, file disputes online with the bureaus. Mistakes happen, so this is well worth your time.
5. Think About Retirement
Focusing on the long game right now may feel weird, but it’s not something you can afford to neglect. Divorce reshuffles your assets and income, so you’ll need to revise your retirement strategy to make sure you have enough saved for your golden years.
Here are some steps you should take:
- Reassess your retirement accounts: Update beneficiaries on 401(k)s, IRAs, or pensions. Overlooking this is a common mistake when resetting finances after separation.
- Know what you kept (and what you lost): If retirement assets were divided, recalculate your projected savings. This helps you set realistic goals while rebuilding finances after divorce.
- Start where you are: Even if your retirement contributions are smaller than before, consistency matters. Even modest deposits into a 401(k) or IRA can help you get back on the path to financial independence after divorce.
- Consider catch-up contributions: If you’re 50 or older, IRS rules allow you to stash away extra money into your retirement accounts each year. If you can afford it, this is a great way to make up for assets lost in divorce.
- Don’t neglect Social Security: If you were married for 10+ years, you may be eligible for spousal benefits. This is especially helpful if you were a homemaker or stay-at-home parent. Check the IRS website to see how much you could be entitled to.
Financial Planning Post Divorce Is an Act of Self-Care
Separating from your spouse can shake up your life, but it doesn’t have to derail your financial future. With the right strategies, you can turn divorce from a challenging transition into a fresh start.
Remember, you don’t need to rebuild everything overnight. Focus on steady, manageable steps, like setting up a budget, tackling debt, and resuming retirement savings. Each action you take moves you closer to financial stability.
