Divorce, for lack of a better term, is a game changer. Whether it’s a surprise out of the blue (like mine was) or amicable, you’ve gone from a “we” to a “me," and it can take some getting used to. After my divorce, I had to deal with the painful and embarrassing realization that while I made my living working in finance, I had no clue what my ex had done with our money during our marriage. (Believe me, I still shake my head when I think about it.)
I’m not alone here. Unfortunately. Many of you have sent emails, telling us how your ex was in charge of managing the household finances. Maybe it’s because it seemed easier. Maybe it’s because your ex insisted he or she was better at it. Maybe you felt like your ex would be better at it because what did you know about money? Or maybe you felt uncomfortable discussing money with your ex: 80% of the women who participated in a 2015 survey on women and finances said they avoided talking about money with those closest to them.
Or maybe you were involved with handling the finances. Maybe you and your ex even had a financial advisor: an older guy, maybe, who spent more time talking to your ex than you...
Whatever the situation, that was then.
Now? You’re starting over, and the checkbook is in your hands. Ok, it might be less than you expected since research shows that, on average, a woman’s standard of living declines by 27% after divorce, while a man’s actually increases by 10%. (Frustrating doesn’t even begin to capture this.)
And you might be nervous because it’s a lot to have on your shoulders, especially after going through a divorce. Here’s what you should keep in mind as you’re getting ready to take control of your finances.
Give Yourself a Financial Check-Up
The truth is if there’s one “good” thing about divorce, it’s that it forces you to get up to date with your financial situation. Assets and debts were analyzed and split, and you’ve had to update your accounts and open new ones. Overwhelming doesn’t even cut it, but, believe me, there’s a lot of value in knowing where your finances stand and where there’s room for improvement.
By the way, if you haven’t updated your will (the American Bar Association recommends rewriting it entirely) and the beneficiaries on your retirement accounts and life insurance, do that ASAP. You can usually change your retirement accounts and life insurance beneficiaries online through your provider’s website. And, if applicable, adjust your homeowner’s insurance policy so it accurately reflects the assets you’ve kept in the divorce in case any jewelry, art, or other valuables changed hands.
Now that your income situation is different post-divorce, you need to figure out what expenses your money can actually cover — and how much you have to save and invest. If you were awarded alimony and/or child support in the divorce, you may be tempted to list that money as income while you’re calculating your budget. But keep in mind that while your ex may be legally required to make those payments, there can be a risk that you may not always get them. You may want to consider being more conservative with your budget and not include those payments as guaranteed income in case your ex ends up missing payments. (It happens.)
And don’t forget about credit. Divorce can take a toll on credit scores as bill payments get lost in all of the madness surrounding the divorce process. Whether or not your credit took a hit during your divorce, reviewing your credit report is a good move — just to know where things stand. The federal government requires each of the three credit bureaus to provide you with one free credit report every 12 months. After that, work on building credit under your own name — particularly if you and your ex had joint accounts for a long time.
Write Down Your Goals
Getting wrapped up in the day-to-day of managing your finances is totally understandable, but you shouldn’t forget about your future. Ask yourself: What are my financial goals?
Starting an emergency fund, if you don’t already have one, is a great short-term goal. Typically, this should cover three-to-six months of your living expenses. At Ellevest, we recommend keeping your emergency fund in a savings account because it should be risk-free and easily accessible.
Then there are your medium- to long-term goals. Retiring well may be top of your list — that’s a goal every woman should have. We tend to have less money saved for retirement than men thanks to the gender pay gap, career breaks, and the gender investing gap — even though we, in general, live longer than men do.
Of course, divorce has a nasty habit of throwing a wrench into retirement planning for women who were counting on their spouse’s retirement plan to cover them; that said, if you and your ex were married for 10 years or longer, you may be eligible for a spousal social security benefit. You’re eligible as long as you don’t remarry, your ex’s benefit is higher than yours, and you’re 62 or older.
What else? If you had to move because of the divorce, you may have a goal of buying a home in a few years or so. And this is another reason why it’s important to maintain/rebuild your credit: the better your credit score, the better the interest rate on your mortgage will be. Which means smaller monthly payments (and more money in your wallet).
Once you know what your goals are, rank them according to priority. This way, it’s easier to see what financial and lifestyle changes you might need to make to reach them.
Pay Yourself And Your Goals First
Now that you have a budget and your top financial goals, you can start to put your money into action. One of the good pieces of financial advice floating around out there (and there’s a lot of bad, believe me) is to “pay yourself first.” That’s even more of a necessity after your divorce since your household income has likely declined.
The rule of thumb with investing and saving is to set aside 20% of each paycheck — but if you can’t do that at the moment, invest whatever you can for now and work your way up. While it’s great to save as much as possible, it’s just as important that you make saving a habit.
Automated transfers really come in handy here because they help you to stick to an investment commitment. Instead of dealing with the temptation of spending or the fear of the “what if,” you’re immediately depositing a portion of each paycheck into your investing or savings accounts come payday.
You can also set up recurring deposits from your checking account to your investment accounts. The reasoning is the same: It’s an easy way to make investing a regular part of your life. At Ellevest, we recommend maxing out your retirement accounts if you haven’t been doing that already.
There’s no denying it: Divorce can pull the rug out from under you. But the end of your marriage shouldn’t spell the end of your financial future. You said bye to the ring and your ex — that’s enough byes for now. It’s time to look forward to the future you want.
Got retirement on the mind? Learn how Ellevest does retirement planning differently in “Your IRA Deserves an Upgrade.”
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