You survived the divorce. Now comes the hard part: getting your new single life on track, especially when it comes to money.
In many cases, the ex-wife has a larger amount of post-divorce financial work to do.
True, some women make more money than their husbands, but they are generally exceptions. And true, the ex-husband usually contributes to two households, his new single one as well as the one maintained by his ex-wife, who typically is the custodial parent of their children.
But the harsh reality of divorce is that the lower wage earner usually suffers the most financially. And that lower wage earner usually is the woman, who may have left the work force, at least temporarily, to care for children.
Even then, however, it's possible to get your post-divorce finances in order and ultimately prosper. The following tips and strategies should help. And much of the advice applies regardless of gender.
Get involved
It's the 21st century, but family finances aren't equal for many reasons.
Carol Arnott, a divorce financial analyst with Greenville Financial Group in Greenville, Del., cites a recent survey of married couples that found the men more likely to be in charge of investments, insurance and retirement planning. The women, meanwhile, focused on day-to-day budgeting and bill paying.
In short, the men were more strategic when it came to money and more comfortable making decisions regarding their financial futures. So it's no surprise that most of Arnott's clients are women. And she's not shy about encouraging them to get involved with their finances and seek professional help "prior to filing or as soon as they're served with papers."
The first step in mastering your money is understanding it. To do that, you need to look completely and carefully at where you stand.
"Start with gathering the information," Arnott says. "For many women, it's the first time they are looking at many of these statements."
Carve out your own credit
Several of those statements are going to be for credit cards or other revolving accounts.
"One of the things that everyone needs to do is check their credit report," says Sheryl Garrett, a certified financial planner and founder of the Garrett Planning Network in Kansas. "Most times, couples, especially longtime couples, have had credit in joint names. If you don't have separate credit, you need to establish separate credit. This can affect men just as easily as women."
Under federal law, every credit customer is entitled to receive one free credit report every 12 months from each of the national consumer-credit reporting companies -- Equifax, Experian and TransUnion. (See "How to get a credit report for free.")
During your divorce, accounts should have been separated and decisions made about which party is responsible for what debts. The credit reports will show whether your name erroneously remains on any accounts, Arnott says. If you spot such an error, it's imperative to get your name off any debt for which you're no longer responsible.
According to the Federal Trade Commission, federal law does not allow a creditor to close a joint account because of a change in marital status, but the creditor can do so at the request of either spouse. Once the credit accounts are separated, you might find you have little or no credit history in your own name. So you need to rectify that as soon as possible. But be aware it's not necessarily a simple process.
Also from the FTC: A creditor does not have to change joint accounts to individual accounts. The creditor can require you to reapply for credit on an individual basis and then, based on your new application, extend or deny you credit.
When you do get an individual credit account, the key for a newly divorced person dealing with new financial challenges is to use that credit wisely.
"It's difficult. We all carry debt," Arnott says. "But credit cards aren't the solution to financial-planning needs. The can get you over a short-term hurdle, but if you're not careful you will dig yourself into a deeper hole."
To avoid making that mistake, you have to take the next financial step: creating a budget.
Establish a realistic budget
Ah, yes, the B-word. It's terrifying even in the best of circumstances. But post-divorce, it's critical to overcome fear of it.
"Although you're familiar with budgeting, post-divorce, things change," says Arnott, even when the two parties have negotiated an equitable settlement. And for some, she says: "It's hard to acknowledge that your lifestyle will change. You had one household to support, but now there are two. I've had women who feel entitled to maintain the same level -- pedicures, manicures, wardrobe, hair -- they enjoyed when married."
In the cases in which expectations are more reasonable, the problem is the process itself. "It's the first time they have done some budget planning," Arnott says. "They know the general bills will come and have been paying them, but that's hindsight. You need to look ahead, or you're going to crash."
According to Arnott, some things to consider when budgeting:
- Anticipate what you're going to spend at least on an annual basis. This includes the standard fixed expenses (housing costs, car payments) and variable ones (utility bills, groceries). Don't forget taxes.
- Look at what your net income will be from work, investments and any spousal support. Be sure to note when alimony or child support is scheduled to end.
- Determine whether your budget will cover a transition period. Perhaps you're going back to school or other career training. If so, your income will be reduced temporarily, and you'll need to budget for the increased costs.
- Once your added education helps you get a better-paying job, adjust your budget accordingly.
Financial planner Garrett also recommends getting the kids involved. "Keep it as positive as possible, but be truthful with them about expenses," she says. One good way is to get the youngsters' help in finding creative, cost-effective solutions for their entertainment.
"They'll learn priorities with money. It's a great life lesson," Garrett says. "And just as importantly, you need their help."
Make the difficult decisions
Children, however, can lead to other budgeting concerns. Women, especially when they are the primary caregivers, often want to maintain a semblance of the life their kids knew before divorce.
"They want as few changes as possible, especially with younger kids," says Garrett. That usually means the custodial parent, typically the mother, wants to stay in the family home with the kids.
"For many, many women, the marital residence is where she raised her children, where she put down her roots," Arnott says. "She can look around that living room and know she picked out that sofa, hung those drapes. There's a real emotional attachment."
And that attachment can be costly unless some difficult decisions are made. The ex-wife probably knows the mortgage payment but may not factor in the home's taxes and insurance, not to mention routine maintenance costs, such as lawn care, major repairs (a new roof) or minor annoyances (which plumber to call for a clogged sink).
Arnott says you've got to "separate the emotional attachment from strategic decisions. In the long term, does owning the house make sense? In a couple of years can you make the mortgage, the maintenance payments?"
Garrett says: "Unfortunately, I've seen too many occasions where keeping the family home is not financially possible. They can do it for a short time but not long term. Now it usually takes dual incomes to maintain a house. So think of keeping it only for a transition period. The stress of trying to keep the old lifestyle is more damaging (to the kids) than an adjustment into a new household."
Invest in your future
Once the budgeting and housing situations are resolved, it's time for some longer-term financial planning. The biggest financial hole that most divorced women must fill is retirement savings. When couples are married, Garrett says, it's not unusual for them to "load up" one party's -- typically the husband's -- retirement account more than the other's.
Compounding the retirement-savings gap is that often, women take time out of the work force to care for children or elderly family members, so they don't have the same resources to build retirement resources, Arnott says.
When they do resume work, women tend to make less money, so they contribute less to retirement plans. And their investment choices for the accounts typically are more conservative. But that reduced risk also means reduced retirement earnings potential. Arnott works with her women clients to assess their risk tolerance. (See "4 ways women can be better investors.")
"There are two types of risk: risk to principal and risk to purchasing power," she says. "If you're investing too conservatively, inflation and taxes are eating away at every dollar you have. You've got to keep your money working for you."
Arnott recommends a systematic investment program, something as little as $25 a month going automatically into an investment that will start to accumulate for a sounder financial future.
"The old adage 'pay yourself first' is true," she says. "If you can do so directly, even to a simple savings account to get started, you'll be in better shape."
Tie up loose ends
Finally, to ensure your current and future finances are protected, don't forget to tie up post-divorce loose ends.
"Some couples have been divorced for months, and I know of one case a year, but were still sharing finances," Garrett says. That's not wise because if your ex-spouse runs into trouble with creditors or gets sued, it could come back to haunt you, she warns.
Make sure all assets awarded in the divorce are transferred to your name. If you're receiving alimony or child support payments, make sure the paying parent has a life insurance policy that will pay you and the kids in the event of his or her death.
Also, be sure to change your beneficiary designations. "No order of court is going to override that," Garrett says. "A man had remarried and presumed his new wife would get benefits." But that wouldn't happen unless he named her as his new beneficiary.
In that same regard, update your will and health-care directives after a divorce, and name a fiduciary for any assets that you leave to your minor children. Review all insurance coverage. Make sure the home and auto policies are in your name, and review the policy limits. If you've been covered under your ex-spouse's health insurance, COBRA rules allow you to stay on that policy for up to three years.
Sources: Institute for Divorce Financial Analysts and Association of Divorce Financial Planners.
