A divorce can brutally batter the finances of both the husband and the wife, particularly in a situation in which the family had blue-collar values and a blue-collar budget. After a divorce, the money that paid the bills and supported a single household must now pay for two sets of bills and two different households. Without the proper planning, it’s possible for divorce to lead the former couple down the road to debt management or even bankruptcy.
Planning is crucial after a divorce. Particularly if you were not the spouse who handled the finances, it’s absolutely imperative to learn about the financial situation, including what bills come in every month and exactly how your income matches up to your expenses. Make sure you know the extent of all insurance policies and whether you need to keep all policies intact after a divorce. Here are some immediate steps to take as soon as it’s clear you and your spouse are divorcing:
Eliminate joint accounts. Agree as soon as possible on a division of the money in any joint checking and savings accounts. If paychecks are automatically added to the account, cancel those and any other automatic deposits. As long as your spouse’s name is also on the account, he or she can empty all the money and spend it.
Don’t leave your name on all credit cards. The same issue goes with any credit cards issued to both you and your spouse.
Don’t just cut up the cards. While your spouse may be honest and reliable, those who are not can spend up to the limit of the card if they are an approved user.
Inspect all checking and savings accounts. Make sure you have a total picture of your finances, including any and all checking and savings accounts, along with any investment portfolios, IRAs, or insurance policies with cash values. The key here is to understand exactly how much money you and your spouse have, something you may not know at all if you didn’t handle the finances during the marriage. This is often a step done during with the help of your attorney.
Try for an acrimony-free divorce. There is a long list of reasons why this makes sense. From a financial point of view, issues that you and your spouse battle over during the divorce will only raise the bill from your divorce attorney. Considering that many divorce attorneys earn $200 an hour on up to $750 an hour, you want to keep that bill as low as you can, if at all possible.
Selling the house is an option. If you are the spouse who wants to stay in the house, carefully do the math first – or even better, rely on an expert. It’s one thing if you are lucky enough to not have a mortgage. But if there is a mortgage to pay and there is significant equity in the home, that cash may be more beneficial split up between the two spouses. If there is an apartment involved, downsizing may be the only move that makes financial sense.
Cut back until it hurts. Once you have a clear picture of all of your income, it’s imperative to make a budget after a divorce. But this likely won’t be like any budget you’ve ever had before. Things are going to be extremely tight, whether the divorce was your fault or not. If it’s any consolation for a spouse disentangling from a bad -faith partner, their budget will be even less reasonable. Remember that everything in your life is topsy-turvy, including your budget. Do your best to create a six-month emergency cushion of savings.
(photo by Dani Gama)