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5 Steps to Managing Your Finances After Divorce

Divorce can be emotionally and financially destabilizing, making it difficult to adjust to a new financial reality.



This makes women the most affected financially by divorce.

Divorce is hard, but finances after a divorce can be crippling.

To help you manage your finances during this transition, here is a five-step guide with the tools and information you need to start rebuilding your life.





Get a full financial picture of your situation.


Gathering a comprehensive understanding of your financial status is an important first step in learning to manage your money after divorce.


Take inventory of your assets, including bank accounts, investments, mortgages, car loans, and credit card balances.


Get to working reviewing your accounts and assets.

Bank Accounts

After a divorce, it’s important to have an accurate understanding of your finances to move forward.


Start by creating a comprehensive list of all accounts that exist, both joint and individual.


Then, carefully divide up any joint accounts in an equitable way. Knowing which assets are yours and how much they are worth will help you gain financial stability and peace of mind.


Therefore, if you and your soon-to-be ex-spouse have joint accounts, you must consider which ones you can close together.


Going to the bank with your spouse may be a little awkward, but it is one of the fastest ways to dissolve a shared account.


That way, both parties can move forward with their financial lives after the divorce.


If you and your ex share a joint bank account, you must have a formal divorce arrangement before funds can be withdrawn or the account closed.


It's important for each individual to create their own bank account. This will give you financial freedom and the ability to manage your personal finances independently from your ex-partner.


Separating bank accounts is also beneficial in helping each party determine financial obligations and responsibilities when splitting assets or debts.



Credit Cards and Loans

After getting divorced, it's important to understand where you stand financially, from examining credit card accounts and loans to looking into your credit reports.


It's also a good idea for both parties to apply for a new credit card in their own name if they don't already have one; this ensures that both spouses have an independent financial history.


Taking these small steps can make a large difference in rebuilding financial stability after divorce.



  • settle the balances immediately and close the accounts

  • agree to pay them later, or

  • do nothing

Unfortunately, your credit score will be affected no matter your actions.



Your Home

When it comes to finances after divorce, the most important asset for couples is usually their home.


To transfer home ownership, one spouse must either refinance or sell the property and divide the proceeds.


This can be a challenge if one of the spouses is not employed, as they may have difficulty qualifying for a loan independently.


In this situation, selling the property and splitting up any money that results is often the best option.


Another option is to leave both of your names on the house, but this can be tricky, requiring a co-ownership agreement as part of the divorce.


If you're not on good terms with your ex-spouse, it might be best to avoid having an ongoing financial burden together.


Once that's all settled, you can begin to construct your new financial reality.


Download a Free Finances after Divorce Checklist:


Finances after Divorce Checklist
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Develop a budget and stick to it.



The best budget is one that is realistic and tailored to your expectations and capabilities. Start by listing all sources of income and expenses.

A budget really works, no matter how much money you bring home.

This will help you prioritize which expenses take precedence over others.


Knowing where your money is going can be one of the most difficult parts of transitioning to a single income, especially if your spouse had a larger income and managed the finances.


Now that the tables have turned, a budget can help you identify areas where you’re overspending while allowing you to enjoy the occasional indulgence without breaking the bank.


However, having a budget is only half the battle.


Sticking to it is the other half. Be honest and accountable with yourself so that you can stay on track and make wise money decisions even after the divorce.


Remember, the purpose of this budget is to help you pay bills on time so you can start rebuilding financially after the divorce.


Revisit your budget monthly to ensure it’s still applicable and adjust when necessary.


Ultimately, tracking your spending with a budgeting system can help bring you financial freedom and peace of mind during the difficult transitional period post-divorce.



Identify potential tax implications from the settlement process.


Divorce can also bring several changes to your taxes. For example, it is important to identify if any portion of the property settlement agreement is taxable.



If a spouse relinquishes their rights to deferred compensation (e.g., pension or 401(k)), it might require filing a 1040X form for review by the IRS.


This is just one example of how your taxes may an after a divorce.


You should consult with a qualified tax specialist or accountant to review your individual financial situation and understand the associated tax implications that come along with it.


They can assist you in evaluating how divorcing couples can minimize the impact of taxes to provide the best financial benefit for both parties, now and in the future.


A good tax specialist will also be able to identify potential planning opportunities for alimony deductions, investment strategies to offset capital gains, and other effective ways to help maximize post-divorce finances.


Here's some good news!


According to the IRS, when the divorce is finalized, all transfers made after the entry date, including monetary awards and property distribution, are not subject to taxation. This includes money received in a cash settlement.


Also, if alimony is part of the divorce decree, it's considered taxable income to the receiving party. Knowing these things will help you assess how best to handle your finances to ensure maximum benefit during this time of transition.



Make sure you have enough insurance coverage.


Insurance can provide critical support to protect your health, finances, and family.


Therefore, make sure you have enough coverage to replace lost financial assistance or to pay for medical expenses.


Make sure any existing policies name whoever has custody of your children as the beneficiary.


Review your medical, dental, and vision plans and life and disability policies.


Make sure to write a new will that covers whatever financial obligation you have agreed to.


Ensure insurance is adequate if a custodial parent passes away, and you must provide financial support to the other parent or guardian.


Your relationship may not be the best with your spouse at the moment but think about your kids.

If you're unsure how to proceed with all of this, consult a financial planner, accountant, or lawyer before making any large life decisions that could put any of your funds at risk.


Consult with a  financial advisor, lawyer, or  tax agent to understand your options.

Another important step is to make sure any shared accounts (checking and savings) have been properly divided and closed and that all payments for joint credit cards are still up to date.


Make sure both parties agree on closing a joint credit card, even if it is just in one name.


Any delinquent payments on an account may affect the credit of both partners—even if only one was responsible for the debt before the divorce.




Take charge of any investments or retirement accounts.


The last thing to remember, and most important, is to review any investments that you and your former spouse may share.


Adjusting the beneficiaries for your investments and retirement accounts is also necessary to have someone benefiting from what you have accumulated during the marriage.


If you had planned for many years ahead with a retirement plan, account for the impact divorcing has on these decisions.


Divorce may allow you to re-evaluate your overall financial plan and look at investments more strategically in light of the new reality.


Most people don't think they can afford to invest after a divorce. However, you don't need a lot of money to invest. Review your budget and start small.


Despite a divorce, you can still ensure that your financial future is secure by investing and creating a retirement fund.



Major Take Away


When going through a divorce, creating and maintaining your own financial identity is important.


Seek professional financial advice if you are uncertain about managing your finances appropriately after a divorce.

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