In May 2010 we wrote about how the great recession had caused couples to put their divorces on hold due…
How To Repair Your Finances After Divorce
Think dating again is hard after being “off the market” for a significant amount of time? It’s nothing compared to trying to repair your finances and restart your career after years as a stay-at-home parent. Divorce not only wreaks havoc on you physically and emotionally, it can also wreak havoc on you financially. This is especially true for spouses who stayed at home and gave up their careers to raise children. In addition to restarting careers, other financial challenges that people face post-divorce include obtaining financial stability, repairing credit, adjusting lifestyles, and setting budgets.
Restarting a career is usually one of the first things that I discuss with my clients who are stay-at-home spouses, even before the divorce is filed.
Not only do these spouses need time to prepare professionally (e.g. by drafting resumes, applying for positions, etc.) they also usually need time to prepare mentally for the challenge. After ten, twenty or even thirty years out of the job market, most of these spouses are in denial about their need to restart a career and obtain employment.
For stay-at-home spouses – whose focus is primarily on what happens in and around the home – separation and divorce upend their lives much more drastically than for those who have careers outside the home. Because of this, stay-at-home spouses will often remain in denial for as long as possible. They want to believe that everything will be okay, or, they may think they can jump right back into a career they abandoned long ago.
Unfortunately, that psychology degree that they obtained twenty years ago and never used is not going help much now. The court will assume that they will start working immediately. They will impose an earning capacity on them even if they are not yet working. This will be used to calculate everything from support to the distribution of marital property. In most cases, there simply won’t be enough income and property to go around. Finding a job will quickly become a necessity. The sooner they realize this and start working on getting back into the work force, the better.
The lesson? Take action sooner, rather than later.
Think of something you can do now. Perhaps go back to school while the divorce is pending and you are receiving support. Or, consider taking an entry-level position you might have once considered beneath you. Support may end when the divorce ends – so don’t squander the opportunity.
Financial literacy is another thing that many of those going through a divorce need to consider. Frequently, one of the spouses has voluntarily remained financially ignorant, usually because of lack of interest in finance. “I know of a divorcing 40-year old woman who hasn’t the first idea how to calculate her income and expenses to create a budget because it’s always been handled by her parents and husband. She calls her soon-to-be-ex-husband in a panic almost every day because she has no idea how to make sense of simple financial matters.” says Honoree Corder, executive coach and author of “The Successful Single Mom”. In our practice, we frequently represent spouses who have no clue about their finances or assets. This makes it extremely difficult to repair for spouses to repair their finances. It doesn’t have to be this way.
There are steps you can take to help get you on the road towards financial stability and security.
First, get an idea of how finances work. Maybe take a course at a community college. Even easier, buy a book like Personal Finance for Dummies – a great easy-to-read book that will give you all the background you need to manage your personal finances. Then, pay attention to all of the financial information that will be considered and discussed during your divorce process. It will give you a good idea of how things worked in the past and what you can expect in the future. This will help you with budgeting in the future (see below).
Repairing credit is also usually on most people’s agenda post-divorce. Divorce involves many large and unexpected expenses, from having to establishing a new household…to selling existing property…to paying legal expenses. At the same time you may be attempting to adjust your lifestyle to live on a severely reduced income. Usually, cash flow becomes a serious issue before those adjustments are possible. Actions taken by your spouse during separation may also ruin your credit. For example, if he or she fails to pay the mortgage on your house or another joint obligation. By the time it is all over, many people have defaulted on credit cards, mortgages, and other bills.
Once the divorce is over, its time to start to repair your finances, especially your credit. However, this doesn’t happen overnight. But every smart financial decision you make now gets you that much closer to your goal. And you don’t have to do it alone. Seek help from individuals and professionals you can trust. Your therapist or divorce attorney is a great place to start. They are usually connected with financial advisors who specialize in working with individuals in transition post-divorce.
Finally, you will likely need to adjust your lifestyle to your new financial reality and establish a budget.
You may have been living large pre-divorce, and probably beyond your means. Living on your own now means making substantial lifestyle adjustments in order to repair your finances.
The first step in this process is to establish a budget. That is the only way to get a clear picture of your financial situation. Start by gathering all of your statements for rent/mortgage, utilities, tuition and all other regular monthly expenses. For many it can be a real eye-opener to see just how much money it actually takes to live “as is.”
Also write down your monthly income – from your job, alimony, child support, pension or social security, any investment income or any other regular source of income. “Once you have a better understanding of where your money is coming from and going to, you will be in a better position to eliminate unnecessary expenses. Having a budget also provides the structure you need in to incorporate saving money for your future financial needs.” (Womansdivorce.com)
I can’t tell you how many people have no idea how much they are spending. Most couples, even those with very significant incomes, live paycheck to paycheck. Often it’s the ones who have been living the high life who are the most reluctant to face reality. I once suggested that a client purchase a more moderate vehicle instead of leasing a new luxury car that she couldn’t afford. You would have thought I had suggested she give up her first-born child!
Without a doubt, the biggest hurdle for many going through divorce and looking to repair their finances is learning how to live within their means.
To do that, you need to distinguish between “needs” and “wants.” Decide what luxuries you can do without. Little things really do add up. You may need to give up that BMW or even your daily latte from Starbucks. Prioritize your purchases. Try to “pay yourself” (i.e. open a savings account) to handle unexpected expenses or to pay for gifts for holidays or special occasions.
Finally, there is the issue of simply separating yourself from your spouse and opening up accounts in your own name. For women going through a divorce who opt to retake their maiden names, they need to consider a variety of things. You need to get a new Social Security Card, passport, driver’s license and credit cards. Be sure you let your bank, insurance agencies, credit card companies, and others know that you’ve changed your name (and address, if applicable.) Jeff Landers, from the Huffingtonpost.com, adds, “titles on all houses and vehicles will have to be modified and recorded with lending institutions, and you will also need to update beneficiaries on your life insurance, 401k, pensions and IRA accounts.” Be sure to have several copies of your certified divorce decree on hand to provide when needed.
It is not easy to repair your finances after divorce. But taking control, making decisions for yourself (and your children), can be empowering. Be honest with yourself and don’t be afraid to ask for help when needed.