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Financially Recovering After Divorce: Guidelines for Rebuilding Your Finances Thumbnail

Financially Recovering After Divorce: Guidelines for Rebuilding Your Finances

There’s no getting around it, both emotionally and financially, divorce is very hard – especially if you have children. Your finances could be affected significantly resulting in division of assets, selling the family home, a new expense for some who have to pay child/spousal support. Although people’s finances can and do bounce back from divorce, it does take time.

Here are some guidelines to follow to help you financially recover from a divorce or separation.

How to financially bounce back after divorce

Create a new budget

Knowing that your household income will likely fall post-divorce, it will be easier to manage your money day-to-day if you revise your household budget to your situation. This can be especially hard to do post divorce and many often find the financial adjustment to be the hardest part. Often times in relationships one person manages the finances so this stage – post divorce, can be exceptionally stressful for someone stepping into this role for the first time. It requires some patience and an open mind as you look into the next phase of your life and try and plan for what that looks like financially.

Adjust your income to include any changes to government benefits, and child or spousal support. Update your expenses to include any changes in childcare expenses, housing and household costs and your portion of any pre-divorce debt. When you can, start saving towards an emergency fund. This is not always possible right away but an important step to financial peace of mind. This is where working with your financial advisor can really bring a lot of value and we encourage you to lean on them if you need to.

Keeping or selling your home

In some situations, divorcing couples decide to sell their home and split the proceeds. Others choose to have 1 spouse stay in the home and buy the other partner’s share by refinancing or giving up other assets.

Although selling the home and splitting the selling proceeds sounds easy, the cost of selling and buying different homes can be significant.

You’ll need to determine how much you can afford for housing. In some cases, it may make sense to rent your home for a while until your finances stabilize. Be kind to yourself with expectations and remember this is not forever, just for right now.

Review your insurance needs

A divorce can drastically change your insurance coverage needs.

If you relied on your spouse’s healthcare benefits for all or part of your coverage, you’ll need to consider if you need to change to your workplace benefits or purchase individual healthcare insurance.

Your life insurance coverage may also need to increase so you have the coverage your dependents will need if something happens to you. For instance, if you become critically ill or disabled and need assistance paying bills, you may require more coverage as an individual compared to having a spouse’s income to cover expenses.

Review your estate plan

You’ll likely need to revise your will and powers of attorney and change beneficiaries on life insurance policies and investment accounts.

Revisit your financial goals

Once you have a handle on your post divorce finances, it’s time to adjust your previous goals and create new ones based on your new reality.

Although there is a strong likelihood you will enter into another long-term relationship or even marriage you should at least for the time being, plan to save for retirement as a single person. Often times in our practice our clients who are on their second and even third marriages keep their finances separate. This can be largely in part due to the painful undertaking it was to rebuild their life financially that sharing assets and finances is just not a desired or attractive part of a relationship to them anymore, and this is absolutely ok. Some even argue it’s the better route to take after their first marriage. We say do what makes you happy and provides the least amount of possible friction in your relationship!

Create a plan to achieve your goals

As we always say in planning, the only guarantee about your financial plan is that it will change. Our job is to continue to help you build and sometimes in this case re-build your financial goals pre and post retirement. This stage requires setting-up new savings strategies to help make your post-divorce goals a reality. This may include changing your investment strategies or looking at ways to increase your income such as changing your career path or picking up a side-hustle.

And remember, this is just a moment in time and it will pass and with a great chance that you will rebuild stronger than before!