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Almost half of all marriages end in divorce. Financial stress is a key reason and given our current cost-of-living crisis, many marriages are under more stress than usual. Sadly, it means we’re likely to see greater numbers of divorces – an experience that is frequently emotionally and financially draining, leaving you feeling overwhelmed and uncertain about the future.
So, it’s crucial for individuals to have a solid plan in place to navigate post-divorce finances. While the emotional aspects of divorce may take time to heal, proactive financial planning can provide a sense of stability and empowerment.
Here’s a comprehensive guide on how to plan financially after a divorce:
Assess your financial situation: Understanding where you stand financially will help you make informed decisions. The first step is to assess your current financial situation. Take stock of your assets, liabilities, income and expenses. This includes everything from bank accounts and investments to debts and monthly bills. This can be especially difficult if you have not been the main income earner or have let your partner be the key driver with your finances. Become financially separated and independent from your ex-partner as soon as possible.
Consider your housing options: Housing will most probably be your biggest expense, so evaluate your options based on your budget and personal preferences. This may involve staying in the marital home, downsizing to a smaller residence, renting or exploring other housing arrangements. Make sure to factor in the costs associated with maintenance, utilities, rates and insurance.
Create a new spending plan – aka, a budget: Develop a realistic budget based on your new financial reality. Consider your individual income, expenses and any financial obligations resulting from the divorce settlement. Be sure to include all your essentials as well as discretionary spending. In my experience, discretionary spending can wreak havoc on your finances, as spending can be an emotional crutch to make you feel better. Creating a spending plan will help you feel a lot more in control.
Build an emergency fund: An emergency fund is essential for financial security, especially after a divorce. Aim to save enough to cover three to six months’ worth of living expenses. This fund will provide a safety net in case of unexpected expenses or a temporary loss of income.
Protect your credit: Divorce could have a significant impact on your credit rating, especially if you shared joint accounts with your ex-partner and they are not financially responsible, or it’s been difficult to disentangle your finances.
Review and update all documents: Update your legal documents to reflect your new marital status and beneficiaries. This includes wills, trusts, powers of attorney and any other estate planning documents. Make sure to remove your ex-partner as a beneficiary and designate new individuals to inherit your assets and make decisions on your behalf if needed. Review your all your insurance policies.
Reflect on your life: The reality of your life today is probably not what you thought it was going to be before your divorce. Take some time to think about what is important to you in your life, your values, goals, career, aspirations. Talk with your friends and use them as a sounding board, or do a few sessions with a life coach if you feel you need help creating a new direction.
Focus on long-term financial goals: It’s important to address immediate financial concerns, but don’t lose sight of your long-term financial goals. Whether it’s saving for retirement, buying a home or funding your children’s education, prioritise your financial objectives and develop a plan to achieve them over time.
Make your wellbeing a priority: Self-care as you navigate the financial aftermath of divorce is crucial. Take time to nurture your physical, emotional and mental wellbeing. Surround yourself with supportive friends and family members and engage in activities that bring you joy, and seek professional help if needed.
Get advice: Don’t hesitate to seek professional advice from financial planners, accountants or lawyers who specialise in divorce-related matters. They can provide personalised guidance based on your unique circumstances and help you make informed decisions about your finances. Consider consulting a therapist or counsellor as well, to address any emotional challenges associated with divorce.
Lisa Dudson is an investor, entrepreneur and author of 8 bestselling personal finance and property investment books. She has been a media commentator on financial issues for more than 20 years and is known for pragmatic, meaningful and easy-to-understand financial advice. She is a director and shareholder of Saturn Advice and National Capital and provides financial and property advice through her consulting business www.acumen.co.nz
