Divorce is definitely not easy, but sometimes it is necessary and it can have a huge impact on women and their finances.
Even though women are the ones who initiate divorce 69% of the time (according to Stanford University), there are high emotions and a lot of uncertainty. How will your life change? Your kid’s lives? Your financial situation?
The U.S. Census Bureau has some startling statistics on divorce in the United States. Approximately every 42 seconds, there is one divorce in America. You are not alone. With women typically living longer than men, there’s more years to plan for. Coupled with the financial toll that divorce has, it is critical to prepare as much as possible to soften the blow.
How to financially prepare for a divorce
When you’ve decided to file for divorce, it’s time to gather as much information as possible and figure out a plan.
When it comes to your new financial future, here are a few things to consider:
Take inventory of your finances
Taking time to get organized and educated is a key factor if you’re planning to leave your marriage.
Here’s a short list of items to start with:
– pay stubs
– credit card statements
– bank statements
– mortgage statements
– investment statements
– income tax forms
– contents of your safe or safety deposit box
– any other pertinent financial documents
The more information you can give your financial planner and lawyer, the better.
Your monthly income
Perhaps you have your own income at the time of divorce and earn more than your spouse, or maybe you have a lower income than your spouse because you have been out of the workforce for years.
Either way, you should work with your attorney and financial planner to try to calculate how much income you’ll require after your divorce. Once you have this information, then you can start planning. There are a variety of sources that may or may not be available to support your income needs–current and/or future jobs, savings/investment accounts and spousal support.
Unfortunately, the reality is that many mothers are supposed to get alimony or child support but don’t. According to the U.S. Census Bureau, only 45.6% of custodial parents who were due child support in 2013 received full payments. This loss of income can be a significant financial blow. That’s why women must prepare for divorce financially and figure out their budget once finalized.
No more joint accounts
If you have a credit card or loan that is in your name and your spouse’s name, you are both responsible for it. It’s best to avoid any negative situations like your spouse running up a large balance on a joint credit card and refusing to pay. This drags down your credit. So be sure to take your name off all joint accounts.
Have at least one credit card that is in your name only. This will help you start to establish your own financial independence. Next, get a separate checking and savings account and save enough money for a couple of months worth of living expenses.
What are your next steps?
With this new independent life, there are countless things you should consider in your financial planning.
- will you stay at the family home
- how will you pay for it
- do you need to get a job
How to pay your legal fees
When it comes to divorce, most people require a lawyer. If you can’t afford one or your spouse has removed your access to funds, there are a few things you can do.
- Ask about a payment plan. Divorce is expensive! Many lawyers offer payment plan options. You might have to pay an initial retainer, and then you would proceed to pay in monthly installments.
- Apply for a personal loan. If you have good credit, you can consider taking out a personal loan to cover legal costs.
- Ask family or friends to help. No one wants to ask friends or family for help, but they may be able to help you at this difficult time.
- Look for pro bono services. The American Bar Association states that lawyers should try to contribute at least 50 hours of pro bono legal services per year to help those in need. With that in mind, it wouldn’t hurt to ask the attorney if they can provide pro bono legal aid.
- Contact the family court in your area. If none of the above options are viable, reach out to your family court. They can refer you to low-cost civil legal services agencies and other resources in your area.
Getting your financial life back in order after a divorce
Once your divorce is final, it’s time to heal your emotions and recover your finances.
As you’re adjusting to your new budget, living independently and paying off debt that you’ve accrued due to your divorce, you might have to tighten your wallet and cut some expenses.
A nice vacation may be just what you’re looking for, but now is the time to save. Work with a financial planner to track your income and expenses, so you know what kind of budget you’re working with.
Pay off Debt
As you’re paying off debt, don’t forget to check your credit periodically. It’s not uncommon for credit to take a hit after divorce. If yours is looking less than great, you should work on rebuilding it, as your credit score affects so many things in your financial life.
To pay off your debt faster, it might be good to look into a side-hustle. There are a lot of options, and with so many jobs going remote, it may be a great choice to freelance.
Save for Retirement
It’s important to not only pay off debt but also save for retirement. With life expectancy for women at 81.2 years (and growing every day with modern medicine), planning for your future is critical. A great way to save for retirement when you’re focused on getting through each day is to make it automatic. If you have a company 401(k), have them automatically deduct it from your paycheck. And if that’s not an option, set aside a fixed amount each week to save in an IRA or other retirement plan that may be appropriate for your situation (always check the rules).
Gaining financial independence may be challenging, especially if your former spouse took care of all the finances in the relationship. However, with a plan in place and sticking to a budget, you will get to a place where you will have financial freedom and be able to grow your net worth.
Life beyond challenges
Divorce can significantly impact a woman’s financial and mental health. It may be challenging, but creating stability during this season of life is doable with enough planning and a strategic approach.
Nothing is permanent, and this chapter is merely an obstacle. You will find a way to navigate it and will once again thrive.
You are independent and free. Set goals, live simply, and before you know it, you will be living the life you desire.
If you’re not sure where to start on your own financial journey, I encourage you to download our FREE Financial Empowerment Guide Exclusively for Women.
If you are looking for a trusted partner to help you navigate financial decisions, we are here to help. Schedule a meeting with us today to see how we can help you with your own financial journey.
Financial Journey LLC is a registered investment advisor offering advisory services in the state of Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.