Recovering Financially after Divorce

6 Easy Steps You Can Take Now to Get Your Money Back on Track

Divorce is a draining experience, both emotionally and financially. You may be adjusting to living on less income, losing a significant portion of your retirement savings, facing child support and/or alimony payments, or be drowning in debt. Just paying the legal fees can be a significant financial hit. estimates the average cost of a contested divorce to range from $15,000 to $30,000. Divorce is pretty awful, even when it’s for the best, and the financial aspects always make it worse. You may be tempted to avoid thinking about your finances but in order to really move on, there are a few things you’ll need to take care of to begin recovering financially after divorce.

1. Take Your Time

The period immediately following a divorce is not the time for major financial decisions. I once worked with someone who went through a very acrimonious divorce. After it was finalized, he celebrated by cashing in what was left of his 401(k) to buy a boat and a new truck. The tax effects of that rash decision came back to haunt him. Not only was the distribution from the retirement account taxable, but he was also hit with a 10% penalty for early withdrawal.

He later regretted making that big decision while he was still emotionally reeling from the divorce. Not only did he owe a much larger tax bill than he was anticipating, he also had no retirement savings and would have to work long past retirement age to make up what he’d spent so carelessly.

Don’t make any big decisions or major purchases until you’ve had time to process the emotional aspects of divorce. Make sure you aren’t mortgaging your future for a little enjoyment today. Recovering financially after divorce is more of a marathon than a sprint. Getting there will require some serious action on your part.

2. Get Started Now

When it comes to making big decisions, you need to take a moment. When it comes to getting your financial house in order, there’s no time like the present. It’s tempting to want to move on to life after divorce without worrying about your finances, but you need to act now to set yourself up for a successful single life.

Many couples split financial decision making. You may have relied upon your ex to handle some aspects of your finances, whether it was the big picture items like investing and saving for retirement or the day to day bill paying. Make sure you know what bills you are responsible for and when they are due. With so many bills being paperless today, you can’t rely on the mail for a reminder.

If you’ve been left with a significant amount of debt that you can’t repay, talk to an attorney about filing for bankruptcy. While bankruptcy is never an easy decision, for some it is the only way to move on from a bad situation, especially when you’re drowning in debt and your credit is already shot. If bankruptcy is the best option, don’t delay unnecessarily. Talk to an attorney and get moving on it so you can start rebuilding your life and credit as soon as possible.

3. Update Your Budget

Going from a dual-income household to a single-income household may mean a decrease in your income as well as the expense of setting up a new household. You may need to downgrade your lifestyle while you get your bearings and rebuild your finances.

Work on creating a budget that focuses on the essentials such as food, housing and utilities, clothing and transportation. Seeing it in black and white can help you see clearly whether you have enough income to meet all of your obligations, or if you need to downsize in order to live within your means.

How to Begin Recovering Financially4. Start an Emergency Fund

Recovering financially after divorce often means you’re starting out from zero. If your savings were wiped out in the divorce, it’s time to make sure you have a safety net. Three to six months of expenses is ideal, but if that goal seems unmanageable right now, aim for $1,000. Set up weekly automatic transfers from your checking account to a savings account and sell unused assets if needed.

Want an easy and nearly painless way to save? Try the 52 Week Money Saving Challenge. The first week you deposit $1 into your savings account. The second week you deposit $2 into your savings account. The third week you deposit $3 and so on. By the 52nd week, after you deposit $52, you’ll have accumulated $1,378 and that’s not including interest.

Once you’ve built up an emergency fund, make sure you save it for an emergency! Don’t be tempted to use it for other purposes. In fact, it’s a good idea to set up your emergency fund at a different bank just to make it a little harder to dip into it for non-emergency expenses.

5. Protect Yourself

Make sure that all assets, including joint insurance policies and bank accounts, are transferred to one name. Many changes will require a certified copy of your divorce decree, so order extra copies of that as soon as possible.

You may need to close joint bank accounts and reopen new accounts in your own name, even if your divorce decree shows those assets were allocated to you. Close any joint credit card accounts. Have your ex-spouse’s name removed from mortgages, auto loans, etc. or refinance when possible.

Order a free copy of your credit report to make sure you know what’s on it. The Fair Credit Reporting Act (FCRA) requires each of the three nationwide credit reporting companies to provide you with a free copy of your credit report once every 12 months. To order, visit or call 1-877-332-8228. Be careful about any other websites offering free credit reports that require you to sign up for credit monitoring or other services.

Set up a reminder on your calendar to check your credit report annually to make sure no fraudulent accounts have been set up in your name.

6. Update Beneficiaries

You’ll likely have to have a new will prepared to change who will inherit from you and choose a new executor of your estate. Some states allow for an automatic voiding of your will upon divorce, but not all.

Make sure to remove your ex-spouse as a beneficiary on all life insurance policies, retirement accounts, annuities, bank and brokerage accounts, etc. Beneficiary designations supersede whatever is specified in your will, so even if your will has been voided or updated, your ex can still inherit those assets if you neglect to change all beneficiary designations.

You’ll also need to update any health care directives or living wills and powers of attorney. Some divorcing couples who split amicably choose to leave these designations in place, especially if they have children together and trust each other to make decisions in the child’s best interests, but that is not always the case so make certain you are aware of what powers your ex will have in a worst-case scenario.

After spending considerable time, effort and expense getting divorced, it’s understandable to want nothing more than to move on and think about something other than credit cards, retirement accounts, and other financial affairs. Before you close that chapter of your life, and begin taking the necessary steps to start recovering financially after divorce, make sure to take care of these critical financial housekeeping tasks to ensure you begin your new chapter in the best financial standing possible.

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