How to Recover Financially After Your Divorce
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Each year, almost 700,000 Americans get divorced. An even more sobering fact is that post-divorce, women’s average household incomes fall by 41 percent, while men’s decrease by just 22 percent.
But as tough as things may seem right now, this could well be a time for investing in yourself. If you’ve traditionally had a tricky relationship with money, now is the time to heal, learn, and thrive. And if you’re already great with your finances, this is your chance to be totally in charge. “One of the most liberating things you can do is start taking ownership over your money,”says Tori Dunlap, author of the instant New York Times bestseller Financial Feminist. “Maybe you’ve seen money as a barrier or as something your ex managed, but you can make the shift to seeing it as freeing and exciting. You now have complete control over your earning and spending decisions, and can use that money as a tool to take care of yourself and your family.”
Once the dust has settled, follow these steps from Dunlap to get back on track with your finances.
Get the lay of the land
Before you can find your feet, you need to know exactly what’s going on with your money. That means pulling your head out of the sand and taking a hard look at the good, the bad, and the ugly. It’s common in relationships for couples to settle into different roles, and if your ex handled the finances, you’ll have your work cut out for you while you relearn this skill. But even if you knew your household money inside out, you’ll be facing a whole new financial landscape post-divorce. You’ll be dropping from two household incomes to one. Maybe you’ll now be paying half your kids’ tuition; maybe the mortgage and home insurance payments are now entirely on you. Whatever your specific circumstances, there’s a lot to get a handle on.
So set aside a good chunk of time to figure out a detailed financial picture. This could be a spreadsheet or a giant piece of paper—the important thing is to be thorough. Jot down absolutely all of your mortgage or rent payments, bills, day-to-day spending, loan or credit card repayments, retirement plans, bank balances, and school tuitions (if you have them). “Ask yourself all the key questions: How much do I have in my bank accounts, and where does this money live?” says Dunlap. “How much credit card debt do I have, and what is the interest rate? What are the terms of any loans I have? Once you have a clear financial picture, you can start to make some decisions.”
If you consider yourself clueless, it’s time to get savvy. Read Dunlap’s book. Watch How to Get Rich on Netflix. Listen to personal finance podcasts like The Women’s Investor Community Podcast (from the whip-smart Diana Richey, who turned her own divorce into the chance to invest savvily and is now teaching other women to do the same), The Money With Katie Show (who somehow makes the driest financial topics seem compelling), and Dunlap’s Financial Feminist (which comes with the alluring promise of helping you gain financial freedom and kick some patriarchal ass at the same time). Although it might be tempting to call in the backup, Dunlap says this shouldn’t be your first port of call. “A lot of women who were married to a man who was handling these bigger financial decisions immediately think, Well, I need a financial adviser,” she says. “The truth is, 99 percent of people don't need one. You don’t need a financial bro named Chad—you can figure this out for yourself. Unfortunately, I see a lot of women go someplace like Edward Jones and pay 3 to 5 percent in fees.”
Make an emergency fund
“If you got money from the divorce, your first financial win is putting aside three to six months of living expenses in a high-yield savings account,” says Dunlap. “You’ve just been through such a tumultuous time; you want your head to hit the pillow at night knowing that your money can take care of you should something happen.”
If you didn’t receive a payment in your settlement, building this emergency buffer should be your top priority, Dunlap says. “We don’t want to go into more debt trying to pay for an emergency. Make the payments for any debt, but don’t pay anything extra until this emergency fund is sorted. Next, focus on eradicating your higher-interest debt (anything over 7 percent; i.e., most credit cards). Then you can move on to saving for retirement and finally paying off your lower interest debt.”
Get on top of your credit score
Credit score in good shape? Great! Skip this section. If you have no idea what yours is, use a free service like Credit Karma or Credit Sesame to find out. Ideally, your number is higher than 670. “Unfortunately, I often see women who have been the cosigner on their partner’s credit card,” says Dunlap. “They’ve been able to make purchases, but they are not actually building their own credit.”
Some factors that influence your credit score—such as the length of your credit history—are beyond your current control. But there are a couple of ways to build your number quickly and strategically. Unsurprisingly, the most important thing you can do is to pay your bills quickly and on time, with zero balance on your credit cards.
Next, look to increase how much credit you have access to. A smart way to improve your score is to increase the amount of credit you have available without actually using it. “Credit utilization is exactly what it sounds—how much credit you’re using,”explains Dunlap. “If you have a $10,000 credit line and you spend $3,000, you have a 30 percent credit utilization rate.” You should aim to utilize the least amount of available credit possible—under 30 percent, or even under 10 percent if you can swing that.
Here’s the simple move: Call your credit provider and ask for an increase, then just don’t spend any more money. “This is one of the easiest ways to build up your credit because you're proving that you’re a responsible credit card user. You’re saying, ‘You gave me a huge credit line increase, but I didn't use it, even though I could,’” says Dunlap.
Visualize your future
This is the fun part. “It’s not about the math,” says Dunlap. “It’s about planning how to use money as a tool to build the life that you want.” Maybe you’re picturing yourself with your mortgage paid off, or maybe you want to buy an RV and travel. “For me personally, I’m picturing Nana Tori drinking wine with lunch and traversing through Italy. She’s having a great time, but I can't give her that unless I do a little bit of work on my end.”
Once you have that dream vision, work backward. “You should be thinking, How do I use money as a tool to get there? What sort of savings goals do I need to make in order to do that? What sort of payoff plan do I need to make for my mortgage?”
Make a plan, schedule a monthly money date to track your progress, and make it a good one. Open that bottle of wine, order your favorite takeout. Do whatever you need to do to make this routine feel good, says Dunlap: “I want every woman to see money again as a tool to start building a life that they love, not the reason they can’t.”
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