Individuals face many different challenges when going through a divorce. In addition to the emotional upheaval, there may also be daunting financial challenges.
After your divorce is final, you might be wondering how to recover financially? Here are five steps to help you survive a divorce financially.
Step 1: Create a New Budget
Your household budget must be revamped to reflect your new financial situation. Start by adjusting your monthly income. For example, if both you and your former spouse were earning income, subtract your former spouse’s earnings from your budget. If you’re receiving any spousal support from your ex, add this to your budget.
Next, adjust your expenses. For example, if you move out of the family home into a smaller house or apartment, your expenses may go down. Other expense like groceries, utilities, insurance and transportation may also go down, but don’t forget to add any spousal support you might have to pay.
Step 2: Commit to Living Within Your Means
Your new budget might represent a harsh new financial reality. However, it’s important to accept this reality and make a firm commitment to following it.
This might require some drastic lifestyle changes, such as eliminating non-discretionary spending on things like entertainment and eating out and even replacing an expensive car with something more affordable. It’s critical to spend less than you earn each month to avoid going into debt.
Step 3: Deal With Debt
Legal bills and other costs associated with divorce can sometimes result in a heavy debt load. Debt can be especially burdensome if these costs are added to already high consumer debt, especially credit card debt.
One way to deal with debt is to take the debt snowball approach. Here, you will pay off your smallest debts first regardless of the interest rate. As each debt is paid off, you’ll apply that payment to the smallest debt remaining and repeat this until you’re debt-free.
This approach might sound counterintuitive — after all, shouldn’t you pay off the highest-interest debt first? Not necessarily. Taking the snowball approach can result in being debt-free sooner because of the satisfaction and motivation of retiring each debt one at a time.
Step 4: Reexamine Your Retirement Plans
Divorce can wreak havoc on the best-laid retirement plans. If you’d been counting on income from a shared retirement account or your ex-spouse’s pension to help you live a financially comfortable retirement, this plan will obviously need to change.
After the divorce is final, take a fresh look at your retirement goals in light of your retirement assets and be prepared to adjust them if necessary. For example, you might have to stay in the workforce longer than planned, adjust your retirement lifestyle expectations or contribute more money to your retirement account.
Step 5: Obtain Health Insurance
You’ll probably need to get your own health insurance if you received coverage through your ex-spouse’s employer. Start by finding out what kinds of insurance coverage (if any) are offered by your employer. Meanwhile, if your ex-spouse received coverage through your employer, be sure to remove him or her from your policy.
If getting health insurance through your employer isn’t a viable option, you might want to shop for an individual plan on the federal government’s health insurance exchange at Healthcare.gov. Regardless of which way you go, make sure there’s no gap in coverage so you’re protected if you get sick or injured.
Following these five steps can help you survive a divorce financially and recover financially from divorce. But don’t delay — the sooner you get started on your post-divorce financial recovery plan, the better.