How to Redo Your Financial Plan After a Divorce

by Kailey Hagen | Updated July 17, 2021 - First published on April 25, 2020

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A woman looking over her bills with a laptop and notepad at her kitchen table.

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Make the transition a little easier by creating a new financial plan right away.

The emotional toll of divorce is well known, but it also takes a financial toll, particularly on those who did not have a full-time job while married and must now fend for themselves. Divorce requires a complete rethinking of your budget, your goals, and your capabilities. Everyone's situation will be a little different, but here are a few things that every divorcing couple needs to do in order to start fresh on their own.

Cut financial ties

The first thing you should do is cancel all of your joint bank accounts and move the money to separate accounts in your own names. You should also cancel joint credit cards immediately so you're not on the hook for any charges your ex runs up. Only one account holder needs to request the account closure, so you can close the joint accounts even if your ex refuses to cooperate. That said, you should notify your ex in advance so he or she isn't caught off guard.

Presumably, you had your ex listed as your beneficiary on any separate bank accounts and brokerage accounts in the event that you passed away. You should change this unless you still want your ex to inherit your money upon your death. Contact your bank or brokerage to figure out how to make these changes.

Rethink your work situation

Those with a full-time job may be able to get by just fine on their own income. But if you transitioned to part-time work or quit working after you got married, you need to seek out new employment immediately -- especially if you do not have an emergency fund to help you through the transition. Consider your skills, experience, and schedule to decide which career is best for you.

You might not find your dream job right away, but it's important to get some money coming in as soon as you can because you can no longer rely on your joint income to cover your bills. Cut back your spending as much as possible until you find work so you can avoid or minimize the debt you take on. Once you have a job, note how much money you'll have coming in each month, or an approximation if you're paid hourly. You'll need this information when you create your new budget.

Take stock of your debts and your credit

Put together a list of any debts you have. For debts that you and your ex had together, your divorce settlement agreement should indicate who is responsible for paying which debts. Make sure you include the total balances, minimum payments, and interest rates. Keep this close by for when you create your budget.

You should also pull your credit reports and check your credit score to see where you stand. Divorce can be hard on credit, especially if your spouse hid debt from you or fails to keep up his or her end of the bargain and pay the joint debts they're legally supposed to. You can't control everything your ex does, so you must begin establishing new credit in your own name. Open your own credit card and make efforts to pay your bills on time. Try not to use more than 30% of your credit limit as this tells lenders you're heavily dependent on credit. Consider a secured credit card if you're struggling to get approved for a traditional rewards card.

Create a new budget

Make a list of all the expenses you must pay for on your own now. Some of these will stay the same, like groceries and a rent or mortgage payment, but you might have new expenses, too. You could owe alimony or child support, or you might have to pay for daycare for your children so you can go to work. Don't forget about mundane expenses like insurance either. You might need to purchase a new policy on your own or change your coverage level following a divorce. 

Once you know roughly what you'll spend every month, subtract this from your monthly income. Remember, monthly income includes money from a job and child support or alimony payments if you'll be receiving either of those. Try to make ends meet by trimming back your expenses if you're able to. You may have to resort to more extreme measures like downsizing your home or apartment. 

In a perfect world, you wouldn't have any trouble keeping up with your debt repayments, but if you do, you'll need a plan. Consider refinancing any installment loans to get a lower monthly payment, but make sure you have good credit and a reliable source of income before you do this or you'll have trouble getting approved. You should also note that if you refinance for a lower monthly payment, you will probably end up paying more in interest overall.

For credit card debt, you can try a balance transfer card or a personal loan. As long as you don't spend more and are able to pay back what you owe within the introductory APR period, balance transfer cards can stop your balance from growing any further. Personal loans will still charge interest, but they'll give you a predictable monthly payment and the assurance that your debts won't continue to increase, assuming you don't charge a bunch of new purchases to your card.

If you have extra money every month, you must decide what you're going to do with it. Building an emergency fund should be your first goal if you don't already have one. This should contain at least three months of living expenses. After that, you can begin saving for your other goals, like a new home or car. Leave some money for doing things you enjoy, too, because you might struggle to stick with your budget if you never get to do anything fun.

Plan for your new future

Think about your long-term goals as a newly single adult. You might want to buy a new home or a vehicle and you'll probably have to rethink your retirement plan. Make a list of all these goals and approximately how much they'll cost you and then decide how much you can afford to put toward them each month. Don't worry about these until you've got your budget and emergency fund straightened out, though. Make sure you're financially stable now before looking too far into the future.

Divorce is a big adjustment and it might take you a few months to get used to your new normal. Following the steps above can make things a little bit easier, but know that every divorce -- like every marriage -- is unique, so you'll probably experience some unique financial challenges, too. You can prepare for these by building up your emergency fund, sticking to a budget, and asking for help when you need it.

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