Divorce rocks a person’s financial stability and security like no other life event. Even if you saw it coming, you may not have made all the steps needed to go from two incomes to one. Settlements are messy and are messier if you have children. Usually, one parent pays child support and that can be a hardship. But child support often doesn’t make up for sharing all of the household expense and debt so the other parent sometimes struggles, too. Research indicates it takes anywhere from five up to 10 years to recover financially from a divorce.
So how do you keep from being another person wiped out by divorce? It is easier if you do it one step at a time.
Create a New Budget
Hopefully, you were budgeting when you were married and you have some idea of your expenses. Wait until your divorce is settled before creating your new financial plan. You don’t want to count on receiving child support or alimony then get surprised when a judge or mediator decides differently. You likely have a lot less money than you did when you were a married person. You may need to get a job (or in some cases a second job) to continue the life you had when you were married. Or you may need to downsize and cut out a lot of the extras in your previous budget.
Avoid Emotional Spending
Divorce can be soul-crushing, even if you were the one who wanted to end the marriage. Some people use retail therapy to make themselves feel better. A new sports car or Caribbean cruise may make you feel better in the short-term but if you have to charge it or take out a loan, you may regret it. The modestly priced dress for a woman or a new gadget or cable upgrade for a man won’t likely break the bank. Better yet, find outlets that don’t cost a lot of money to help heal your broken heart.
Get Your Own Credit Established
This doesn’t just apply to stay at home wives or mothers who may have relied on their husbands for income. While many couples keep their finances separate, others have both names on everything including the house, cars and credit cards. When couples can’t agree on how to split the finances, the judge or mediator will decide on a settlement. As soon as you know what you are responsible for, get your former spouse’s name removed. More importantly, make sure your spouse removes your name from any debts you no longer must pay. Once you have done these steps, check your own credit history. Do you need make some repairs or need debt relief? Do you need to establish accounts in your name? Don’t wait to do this. Also, send a letter to the three credit bureaus and let them know you are no longer associated with your former spouse. Challenge anything on the report that is not your responsibility.
Check Retirement, Life Insurance and Other Accounts
Most spouses list their husbands or wives as their beneficiaries on their life insurance and other accounts. Remove your spouse from these accounts as soon as possible. Check all of the insurance accounts and make sure they are separated. Also check the status of any retirement accounts. Were you relying on your husband or wife’s 401K to see you through your golden years? Unless you were awarded a portion of the retirement account in the divorce, you will need to start saving on your own.
Check the Tax Implications of Your Divorce
You may have been married 363 days of the year but if your divorce is finalized by Dec. 31, you cannot file as married for that year. This could change the amount of taxes you will pay or the refund you will receive. Most parents alternate who receives the child tax credit and the credit can make a big difference in tax debt. Look at any deductions you received while married and make sure you can receive them now that you are divorced. You don’t want to get into trouble with the Internal Revenue Service.
Paul J Paquin is the CEO at Golden Financial Services and the author of the book called; “A Complete Debt Consolidation Guide to Become Debt-free”. Paul spent the last 15-years engulfed in debt consolidation, as the CEO at Golden Financial Services, learning about the most effective debt relief options by researching and testing different methods.