Struggling Financially After Divorce? Here's What to Do

Divorce can devastate your finances. Here are some steps you can take to try to get back on track financially. 

Divorce can have a profound impact on your finances. Unfortunately, coping with money issues after divorce can be challenging as you try to rebuild your life. If you've been left struggling financially because of your divorce, it's important that you are as proactive as possible. 

Some of the steps you should take immediately to try to get back on track financially include adjusting your spending to your new single-person budget; making a plan to deal with any debts the divorce left you with; considering how divorce will affect your taxes and health insurance; and setting some new financial goals. You may also need to work on building credit in your own name if you shared joint accounts with your spouse.

If you're not sure how to handle all of these post-divorce financial tasks, this guide will walk you through some of the key steps you need to take. 

1. Rework your budget to adjust to your new financial situation

For most people, a divorce means you have more expenses to meet with less income. Where you once had two people contributing to one household, now you're solely responsible for covering all your costs. And you're reliant on only your income without contributions from your spouse. Even if you are a higher earner, you may have new obligations such as child support and alimony to pay. 

You'll need to make sure your budget fits with your new financial reality, because trying to hold onto old spending habits could quickly lead to financial disaster. Figure out how much income you'll have coming in post-divorce and allocate that cash to essential expenses. If you find you don't have enough to maintain your current standard of living while staying out of debt and saving for retirement, you'll need to make big changes.

It can be helpful to make these changes sooner rather than later so you don't continue to spend as you used to and harm your financial security in the process. You may have to sell the marital home, for example, or downsize to a less expensive vehicle if you can't afford the payments or maintenance. 

2. Make a plan to deal with debt

Often, divorce leaves you in debt due to legal bills and other associated costs of ending your union. You'll want to be proactive about making a plan to deal with this debt as soon as you possibly can. 

One good approach may be to refinance the debt. If you put lawyer's bills on a credit card and are currently paying a high interest rate, a balance transfer or personal loan could help you to sharply reduce the interest you're paying on your debt.

You should also work your budget so you send extra payments to this debt to keep the total costs down and get back on track financially. It's worth making short-term cuts and giving up small luxuries for a limited time. That way you can retire your divorce debt and move forward with more spare cash available once it's no longer promised to creditors or going towards interest. 

3. Work on building credit in your name if you don't have it already

If you didn't have credit cards or loans in your own name during your marriage, it's important you start developing your own credit history ASAP. You'll need a good credit score when renting or buying a home or when applying for any loans in the future. 

If you haven't ever obtained credit on your own, it may be hard to get approved to borrow post-divorce. Unfortunately, you need access to credit to build credit. That's because you need to show you can borrow responsibly. If you aren't able to get a standard credit card, you can apply for a secured credit card. Almost anyone can get one easily because they require you to make a deposit that's generally equal to the line of credit. Use your card, make small purchases, and pay off the card on time each month to develop a positive payment history. This is a very important component of your credit score. 

If your former spouse is listed on any of your credit card accounts, request to have his or her name removed ASAP so they can't continue using the accounts. And if you're still listed on any joint loans with your ex, those should be refinanced into the name of whomever is responsible for paying them. Otherwise, if your ex misses a payment, your credit could be hurt -- even if your divorce agreement says you aren't responsible for the debt. 

4. Change your tax withholding

Your tax situation will almost assuredly change after your marriage ends because you can't file as married anymore. 

Depending on whether you can claim your kids as dependents or not, you may either have to file as single or file as head-of-household. Either way, it's important to adjust the money your employer withholds from your paycheck. Otherwise, you may have more money being taken out of your check than should be -- leaving you with a cash shortfall. Or, you may have too little being taken out and end up with a big tax bill, which is the last thing you need. 

5. Explore health insurance options

If you were previously getting health insurance through your ex, explore all your options for getting covered on your own. You may be able to get a plan on the Obamacare exchange that comes with subsidies to help cover your premiums, or you may be able to get signed up for an employer plan where you work. 

If you were covering your ex, make sure he or she is taken off your policy so you don't get stuck subsidizing their healthcare costs (unless your divorce decree requires you to do so). 

Whatever you do, make sure there is no gap in coverage for yourself or your kids, as one minor illness or injury could further exacerbate post-divorce financial problems. 

6. Look for ways to increase income

When you're dealing with a downsized budget or trying to pay debt associated with divorce, increasing your income can be extremely helpful. 

Look for ways to earn more by learning new skills or picking up a side gig. You can keep busy during your early days of being newly-single by bringing more money into your household. This extra cash will help you become financially stable and overcome any money struggles the divorce is causing you. 

7. Set some new financial goals

Now that you are on your own, it's up to you to set financial goals and make plans to achieve them. 

The future will look different than you planned now that you're divorced. Think about things like saving for retirement and saving up an emergency fund since you no longer have a spouse's income to fall back on if something goes wrong. You may also want to set some fun goals, such as saving for a vacation, so you have something to look forward to.

Be as specific as possible in setting these financial goals. Start with the essentials, such as becoming free of your divorce debt or rebuilding your emergency savings, and determine how much you need to put towards these goals each month. Then work your budget to prioritize meeting your objectives.

8. Ask for assistance if you need it

If you aren't sure where to start when it comes to getting your financial life in order, you may want to talk with a financial planner about making a post-divorce financial plan. 

You may also need help from other sources, depending on your situation. There is usually free or low cost legal assistance in most areas to help you recover unpaid child support if your ex isn't paying. Or, you and your kids may qualify for government benefits without your ex's income. 

Don't be afraid to use all the resources available to you as you rebuild your financial life. After all, divorce is a major money setback and it can take time to get back on your feet. 

Your finances can recover after divorce

Rebuilding your financial life after a marriage ends can seem daunting, but it is doable. Just follow these eight key steps and before you know it, you'll be in a much better place with your money and you'll have a brighter future to look forward to.