How to get back on your feet financially after a divorce

This story was originally published in April 2021.

When a marriage ends, it brings with it all sorts of emotional, physical and practical changes. One of them, and an important one that should not be overlooked, is the change it brings to finances.

“Divorce can bring up a lot of emotions, and that’s normal, as this is a time of transition into the unknown. The best way to combat fear is action, and action combined with knowledge is empowerment,” says Randa Hoffman, a financial planner at Radiant Wealth Planning, LLC.

This is what you need to know about financial matters after a divorce.

Work out the debt details

During a marriage, a couple can incur small or large debts. They can buy a home, co-sign for loans, share credit cards, or consolidate finances into joint accounts. In the event of a divorce, joint finances must also be separated.

In a divorce, jointly acquired assets such as the house, cars and savings are divided. But what about debts? These are also dealt with.

Once you know who will pay which debts, it’s time to manage their costs.

“If there are debts that you co-signed on, it’s best to try to refinance them so that they’re only in your name or your ex-spouse’s name,” Hoffman says. This is beneficial because it means that the person paying the debt is the only one who will suffer if, for example, a late payment occurs.

And then work on paying off the debt.

“Make a plan to pay off your debt each month, and look for ways to pay more than the minimum to lower the interest,” says Chris Abrams, founder of Abrams Insurance Solutions. “I recommend talking to a financial advisor. They can work out a repayment plan that takes into account your marital debt and legal expenses.”

Creating a new budget

Your old budget—the one that took into account (or at least offset) joint expenses and income—isn’t working anymore. It’s time to create a new budget that includes your new expenses and joint income.

“Creating a budget during a divorce is crucial to ensure you don’t overspend, especially if you’re used to living on two salaries,” says Ben Reynolds, CEO and founder of Sure Dividend.

Grab a notebook and write down two things: the income you’ll be bringing in and the expenses you’ll have. Don’t forget to include your rent or mortgage payment, car insurance, loan payments, credit card payments, alimony, child support, and other fixed amounts. You’ll also need to estimate other expenses, such as gas, food, and entertainment. Then, see if your income covers your expected expenses.

If the numbers don’t add up, it’s time to make changes, such as reducing your expenses or downsizing your living situation.

“You may need to temporarily cut back on your discretionary spending to make sure you can pay those irregular bills like taxes,” Reynolds said. “A second job or side hustle can help you weather the financial challenges of divorce. An extra $300 can help you pay off any debt your ex owes.”

Build your credit

When a marriage ends, it can be tempting to rely on credit to fill income gaps or handle unexpected situations. Other times, an ending marriage can mean a spouse without credit must rebuild it. Whatever the case, paying attention to your credit score—and being responsible with your finances—is essential.

“A good credit score is essential to your future. You can’t buy a house, get a loan, or even get a job with a bad credit score,” Abrams said.

Start by making sure you pay your loans and credit on time. And if your credit is particularly bad, find ways to repair your credit score.

“One option to repair your credit score is to apply for a secured credit card. These credit cards require users to back up their credit line with a down payment,” Abrams said. “Because they limit the risk to lenders, these credit cards are often available to people with poor credit scores. You can build your credit score by making purchases and paying your card on time each month.”

You should also correct financial mistakes in your credit profile to keep your credit healthy in the future.

“You can develop healthier spending patterns by limiting your credit limit to less than 30 percent, which can help reverse any actions your ex-partner may have taken on joint accounts,” Reynolds says.

Don’t forget to save

Even if you’ve never had a large savings account, now is a good time to change that. Money in your savings account means you have a buffer for life’s unexpected events. And that in turn will ease the stress of things like car repairs or medical bills.

Set aside money to save in your personal budget and follow through. Or, if your budget is particularly tight, jump-start your savings in other ways, such as selling items from your wedding that you no longer want or need.

However you do it, putting some money aside will make life a lot easier in the future.