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How to Recover Financially After a Divorce

Getting married is one of the biggest financial decisions you’ll ever make.

There’s plenty of preparation that goes into combining your finances and setting financial goals with your new partner. There’s an infinite number of resources available focused on helping you manage your finances in a relationship.

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But even though data shows that roughly 39% of marriages end in divorce (down from nearly half of marriages), we don’t talk much about the financial impact of divorce, how to prepare for it, or how to recover after a divorce.

How Divorce Affects Finances

Given the high rate of divorce, chances are that each of us knows someone who has gone through a divorce. In fact, it’s likely that each of us knows someone who has gone through a divorce and suffered financially because of it.

First, divorce itself is expensive. One survey found that the average cost of divorce is around $15,000 including court filing fees, attorney fees, mediation fees, and more. But in divorces with costly custody battles, the cost can exceed $100,000.

Divorce also usually results in a decrease in both household income and net worth for both parties. You may find yourself needing to adjust to a new standard of living.

And unfortunately, the outlook is even worse for women in divorces. In 2021, women still earn just 82 cents for each dollar that men earn. The disparity is even larger for women of color and mothers.

In cases of heterosexual married and cohabitating couples, data shows that in roughly 69% of cases, the male partner earns more than the female partner. Another survey found that more than half of divorced women saw their credit scores decline after marriage, compared to 42% of men. As a result, women may have a more difficult time starting over when it comes to renting an apartment, opening a credit card, or borrowing money to buy a car or house.

Moving On Financially After Divorce

While these statistics sound grim, it’s important to note that divorce can also be a launching point for a better financial life. With the right financial plan in place, you can use the fresh start of a divorce to get your spending on track, start saving, increase your income, and achieve your financial goals.

Another recent study confirmed that despite the financial impacts of divorce, most people feel they’ve recovered both financially and psychologically within five years. And the best way to recover is to take steps to get your financial life back in order.

10 Financial Steps to Take After a Divorce

1. Create a New Monthly Budget

Chances are that your household income and expenses look a bit different after a divorce. And you may be budgeting on your own for the first time after years of budgeting as a couple.

To create your budget, first document your monthly income and expenses. Some expenses may be higher, such as housing if you moved to a new home post-divorce. But you may also find that some expenses are lower, such as eating out and groceries now that you’re shopping for one.

Personal Capital’s budgeting tool can help you track your income and expenses throughout the month and stay on top of your spending goals.

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2. Calculate Your Net Worth

When you’re starting fresh after a divorce, it’s important to get an accurate look at your full financial picture, and that includes your net worth. If you’ve been tracking your net worth jointly during your marriage — or even not tracking it at all — then it might look a bit different than you thought.

Your net worth is the difference between your assets and your liabilities. Tracking your net worth consistently over time can help you to see just how much progress you’re making on reducing debt and saving for the future.

3. Reduce or Eliminate Expenses

If your household income decreased as a result of your divorce, then you may find that you simply don’t have room for certain expenses in your budget anymore, or at least not at the level you were spending before.

While you’re working on bouncing back financially, go through your budget to see what expenses you can cut or reduce. For example, you could refinance your car loan to reduce your monthly payment, or even sell the car and buy a more affordable one with no payment at all.

To find what expenses you can reduce or eliminate, go through your bank or credit card statements for the past few months. What purchases aren’t really necessary? Which ones do you regret spending money on? Those purchases can be easy ones to cut from your budget.

Remember that while it’s important to spend within your budget, it’s also critical that you prioritize your mental health. If there are expenses in your budget that seem unnecessary but help lighten the emotional load, then you may find they’re worth the money.

4. Build an Emergency Fund

For many people, divorce wipes out all or much of their savings. One of your financial priorities after divorce should be rebuilding your emergency fund.

A good rule of thumb is to keep between three and six months of expenses in your emergency fund. If you’re self-employed, have an inconsistent income, or are especially risk-averse, then you may want to save even more.

5. Set New Financial Goals

When you were married, your financial goals may have been those you set together with your spouse. But now that you’re starting your new life, a great way to move forward is to set new financial goals for yourself.

As you’re setting your financial goals, ask yourself what you want your life to look like one, five, and ten years from now. What goals would you like to accomplish that would allow you to live your dream life in the future?

6. Make a Plan to Pay Off Your Debt

Whether you have debt that you took on during your marriage or divorce or are still paying off student loans from before your marriage, now is the time to create a plan to pay off your debt.

There are several different debt payoff methods you can use as a guide. For example, the debt snowball is where you start by prioritizing the smallest debt, snowballing monthly payments as you pay off each debt.

On the other hand, the debt avalanche has you prioritize those debts with the highest interest rate to save money in the long run.

7. Work on Rebuilding Your Credit

If your credit took a hit during or after your marriage, then spend some time boosting your credit score. Having a good credit score in place can help you when it comes to reaching some of your larger financial goals.

A few tips to increase your credit score include:

  • Make your monthly payments on time. Your payment history is the most important factor in determining your credit score.
  • Keep your credit utilization below 30%. You can reduce your utilization by paying down credit card debt and using less than 30% of your available credit at any time.
  • Run your full credit report. Find out if there are errors on your credit report or accounts in collections that are keeping your score low.

You may even find that after your divorce, you have little to no credit history at all. In many marriages, the couple relies on one partner’s credit for things like credit cards, auto loans, and even mortgages.

If you don’t have much credit history, consider opening a new credit card to help build your credit history. If you don’t have sufficient credit to qualify, you can start with a secured credit card.

8. Find Ways to Increase Your Income

One of the best ways to recover — and even thrive — financially after a divorce is to increase your income. While this can be easier said than one, there are plenty of ways to go about it, including:

  • Applying for a higher-paying job
  • Asking for a raise or promotion
  • Picking up a part-time job or side hustle

9. Plan for Your Financial Future

When you’re recovering from a divorce, your current financial situation is most pressing, and it’s easy to avoid thinking about the long-term. But now that you’re single, it’s especially important that you prioritize your financial future by investing for retirement.

You may already be contributing to a retirement account, whether it be an employer-sponsored retirement account or an individual retirement account. Be sure to check in on those accounts and use Personal Capital’s Retirement Planner to ensure you’re on track to meet your retirement goals.

10. Hire Help If You Need It

It’s important that you know you don’t have to go it alone. There are plenty of financial professionals who are equipped to help you through this transition. If you feel you need help planning or executing your new financial plan, you can consider hiring professionals such as a money coach, financial planner, accountant, or financial advisor.

Ready to take action? Start managing your financial life with free online tools that aggregate all of your financial accounts in one place. You can use Personal Capital’s free tools to:

  • Create a new budget
  • Track your net worth
  • Analyze your investments
  • Devise plans for long-term financial goals, like debt paydown, home buying or retirement

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Advisory services are offered for a fee by Personal Capital Advisors Corporation (“PCAC”), a registered investment adviser with the Securities and Exchange Commission. Registration does not imply a certain level of skill or training. PCAC is a wholly owned subsidiary of Personal Capital Corporation (“PCC”), an Empower company. PCC is a wholly owned subsidiary of Empower Holdings, LLC. © 2021 Personal Capital Corporation. All rights reserved. Personal Capital compensates Erin Gobler (“Author”) for providing the content contained in this blog post. Compensation not to exceed $500. Author is not a client of Personal Capital Advisors Corporation. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. No part of this blog, nor the links contained therein is a solicitation or offer to sell securities. Third party data is obtained from sources believed to be reliable; however, Personal Capital Corporation (“PCC”) cannot guarantee the accuracy, timeliness, completeness or fitness of this data for any particular purpose. Third party links are provided solely as a convenience and do not imply an affiliation, endorsement or approval by Personal Capital of the contents on such third party websites.

Erin Gobler is a money coach who helps people pay off debt and reach their big financial goals without giving up spending on the things they love.
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