Five ways to handle your finances after a divorce

Adjust to your new cash flow, restart your savings and rebuild your credit score, experts say

A separation of finances after a divorce may mean changing your spending habits and adapting to a new budget. Getty Images
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Jamie Lima remembers his divorce six years ago as one of the most emotionally draining and financially challenging experiences of his life.

As a result, he resolved to use his professional background as a certified financial planner to help other people going through similar situations.

“I want to make sure other people don’t step on the same landmines and be an advocate for them,” says Mr Lima, founder of the California-based Allegiant Divorce Solutions, a financial planning company that helps people going through divorce.

While the financial aspect of divorce is often overshadowed by the emotional impact, rebuilding finances after the dissolution of a marriage can be an integral part of overall recovery.

Mr Lima and other financial experts recommend following these steps to navigate the financial challenges post a divorce:

1. Adjust to your new cash flow

A separation of finances after a divorce may mean you have to do more with less.

“You want to start to look at, ‘If I walk away with half the assets and these are my income streams and this is my lifestyle, what will I have to do?’” says Erin Voisin, a financial planner and director of financial planning at EP Wealth Advisers in California.

The answer might be changing your spending habits and adapting to a new budget, she adds.

“Your whole timeline of your life might also have to change,” says Megan Kopka, a financial planner and founder of Kopka Financial in North Carolina.

You might need to delay retirement or put off a career change, for example.

“A lot of people are basing their mortgages and lifestyles on two incomes, so everybody has to reassess” following divorce, she says.

2. Rebuild your safety net

Dominique Reese, chief executive of Reese Financial Services, a financial coaching company in Los Angeles, says many people also need to rebuild their savings after going through the financial shock of divorce.

She suggests giving yourself microgoals to avoid feeling overwhelmed.

“Everybody’s financial situation is different, but you can start off with $100 and then let’s go to $300, then $500” and onward, Ms Reese says.

While it’s ideal to save three to six months’ worth of expenses, she acknowledges that amount is impossible for many people and says a smaller goal can be more motivating.

3. Build credit in your own name

Opening bank accounts and credit cards in your name only, if you had not previously done so while married, is also a critical step towards rebuilding finances post-divorce, Voisin says.

“It’s important to build credit in your own name,” Ms Voisin says, as well as save for retirement in your own account, update your real estate documents to reflect the correct owner, and update any beneficiaries listed on your financial and life insurance accounts.

This multistep process can take several months or longer.

While marital status is not reflected on credit reports, getting divorced can indirectly impact your credit because of shared accounts or if you used credit cards only as an authorised user on your spouse’s accounts.

Post-divorce, it can be a good idea to request your free credit report to make sure it no longer lists your former spouse’s accounts or accounts previously held jointly but no longer yours.

4. Get help from experts

Given how complicated the financial aspect of divorce can be, sometimes turning to professionals can be worth the cost.

“Before you hire your attorney, hiring a certified divorce financial analyst to help you with finances and a good divorce coach to guide you through the emotional aspect can help a lot,” Mr Lima says.

Divorce coaches focus on helping clients achieve their goals for their post-divorce life.

Mr Lima says consulting such professionals is something he wished he had done sooner when going through his own divorce because third-party input might have helped him make more rational, less emotional decisions around separating his finances.

5. In future relationships, talk about money early

While most couples don’t sign a pre-nuptial agreement, which generally lays out how money and assets are to be divided in the event of a divorce, financial experts say having one in place can make sorting out finances post-divorce much easier.

That can be especially important when getting remarried later in life with more assets or when children are involved.

If a couple isn’t comfortable talking about a pre-nup, they may have some work to do before committing to a lifelong partnership, says Nicole Sodoma, a family law attorney at Sodoma Law in North Carolina.

Talking about a pre-nup, she says, forces couples to have hard conversations about money that they might ignore otherwise.

“Hopefully, after having those discussions and agreeing on a pre-nup, you’ll put it in a drawer or safe and never need it,” she adds.

“But in the event you do, it will be a diagram for what separation looks like.”

Updated: December 13, 2023, 4:00 AM