Divorce, Debt, and a New Spending Plan
Your financial situation can significantly change once you are divorced. Assessing your finances during and after your divorce may help you stay in control of your savings and spending during this very stressful life-changing event.
4 Steps to Stabilizing & Strengthening Your Finances After a Divorce
1. Assess Your Financial Situation
Gaining a firm grasp on your financial situation will help you put together a plan that will help maintain and secure your financial future. Requesting and reviewing your credit report through a resource like annualcreditreport.com is a good starting place for a current financial picture.
While setting up your divorce agreement, the joint debts may be divided between you and your former spouse. Keep in mind that you may still be responsible for debts that are in both of your names jointly even if your divorce decree states that the debts are to be divided. Reapplying to shift the debts into individual names may put both of you in a better situation by managing your finances and debt independently, if possible. If it isn’t possible, keeping an open communication with your former-spouse on these types of accounts is essential. If these payments aren’t made on time each month as agreed, this could adversely affect your credit report, so it’s important to remain aware of the status of these accounts.
Authorized user accounts should also be reviewed. These are accounts that you are responsible for but which your ex may have access to. Contacting the lender and requesting that they remove the authorized user will help to protect your account and your responsibility for increasing debt on these accounts. You may also want to collect any cards in the authorized user name, too.
2. Protect Your Worth by Updating Personal and Financial Documents
Reviewing your exemptions with your employer or tax advisor will help prepare you for how divorce will affect your taxes. If you handled the household expenses before the divorce, you may be more comfortable with and aware of your financial picture. Conversely, if your former spouse handled all of the household expenses, you will need to familiarize yourself with this process. This is a great time to make sure that you are doing all of your banking with a trusted financial institution. This could all be new and a little overwhelming at first, but reviewing and developing a plan will help you feel more in control of your financial future.
Locate and reorganize important documents such as tax returns, wills, insurance policies, Social Security cards, birth certificates, investments, 401(k) statements and documentation, retirement pensions, medical insurance, and mortgage documents. You may also wish to update some of these documents, changing beneficiaries, for example, based on your new situation. Once these documents are updated, you’ll want to keep them in a safe location that’s easily accessible.
This is also a great time to review your insurance plans, health insurance, and living wills to make sure you are appropriately covered for any emergencies that may arise.
3. Create a New Spending Plan
Reviewing each of your expenses and having a plan to reduce or maintain them is an important step during this or any life change. Frequently, when our situation changes, we forget to revisit our savings needs. It is likely that your savings habits will need to be modified to allow you to set aside even more money than before your divorce. You will need to reanalyze unplanned expenses that you’ll be handling on your own now as well as your retirement savings.
Setting up and building a spending plan, a plan designed around you and your financial goals, is very beneficial during this life change. This plan shouldn’t be viewed as restrictive, but as an understandable financial path for you as you start a new phase of your life.
4. Set New Financial Goals
It’s pretty safe to say that your financial priorities will change during and after a divorce. Making decisions about what you would like to do with your money—and setting these decisions in motion—helps your goals become a reality. Making your goals realistic and flexible to your new circumstances will help to keep this step from being frustrating and also will keep you on track to meet your new goals. Setting up an appointment with a trusted financial advisor is a great first step towards building a financial plan that meets your individual financial needs.
It may be wise to allow some time to pass before making any major financial decisions after a divorce, but securing your financial stability and looking ahead to the future is essential.
At Call Federal, our certified credit union financial counselors can be a powerful resource for you during any life stage, but we understand that divorces can add extra stress into your life. Enabling your financial path ahead to be a little less bumpy and a bit more direct is exactly why we’re here.