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Few life events are as financially disruptive as a divorce. Many couples are accustomed to splitting bills large and small, from utility payments to mortgages. Untangling your finances and moving forward as a single person can be overwhelming. This is especially true for couples with significant assets or joint debts.
During and after a divorce, it's important to stay on top of your bills so that your financial health doesn't take a hit. Let's dive into the changes you may need to make to your personal finances.
How Can Divorce Affect Your Finances?
Research suggests that financial stress from a divorce can take years to subside. A 2019 Fidelity Investments survey found that over one-third of divorced people were still financially recovering five years later. More than half said they'd made financial mistakes during their divorce.
And then there's the cost of the divorce itself. The average hourly rate for a divorce lawyer is $270, according to legal site Nolo. Folks who hire an attorney to see their divorce through to the end spend an average of $11,300. Parting ways with your spouse will likely have a ripple effect on your finances.
- Your income will look different. Going from a two-income partnership to life on your own will probably change your monthly income. Receiving alimony or child support can certainly help, but your monthly cash flow will likely look different after a divorce—especially if you're the one providing financial support to your ex-spouse afterwards.
- Your bills will change. When you're no longer living with your spouse, you'll be on your own to cover your housing payment, utilities, groceries, streaming services, health insurance and other bills you were accustomed to splitting with your partner. Depending on how your marital debts were allocated during your divorce, you might also be on the hook for monthly debt payments. All of these expenses can add up and increase your cost of living.
- You may need to adjust your lifestyle. There are two main components of a healthy budget: your income and your expenses. Divorce affects both of these things. This might require you to make lifestyle changes like finding more affordable housing, selling your car and opting for cheaper transportation, or cutting some monthly expenses.
How to Separate Your Financial Life From Your Ex-Spouse
Untangling your finances from your ex-spouse can be a complicated process with a lot of moving parts. It's important to cover your bases and start separating yourself financially as soon as possible to ensure a clean break with little damage to your financial health.
Where You Live Matters
During a divorce, the division of property is dictated by state law. In community property states, married couples are considered joint owners of pretty much all assets and debts acquired during the marriage. That means you're equally responsible for loans and debt balances, regardless of whose name is on the accounts. On the other hand, you're also both equally entitled to earned income, savings and retirement accounts, real estate and personal property.
In common law states, assets are owned by the spouse who acquired them (unless they're owned jointly). This allows each spouse to keep certain debts and assets. It's worth noting, however, that a judge can still use their discretion during proceedings and assign debt to another party.
Removing Yourself From Accounts
When your debts and assets are divided after your divorce, your name may still be attached to accounts that your ex-spouse is taking. If you don't remove yourself, accounts like mortgages, credit cards and auto loans will continue to show up on your credit report. That could negatively impact your credit score if they fail to make payments. Even if a divorce decree says you are no longer responsible for paying an account, you're still legally responsible for any debt that has your name on it.
Refinancing debt is a simple way to clear your responsibility. This involves your ex-spouse taking out a new loan, then using that to pay off accounts that are in your name. They can use this strategy to absorb credit card balances, student loans, auto loans and more.
Mortgages are a little more complicated. You and your ex-spouse will have to decide if you'll sell the property, split the proceeds and go your separate ways—or if one of you will keep the home. This person may have to "buy out" the other spouse's financial interest in the house. This typically starts with getting a property appraisal to determine its value before refinancing the mortgage. Depending on the complexity of your situation, you may want to bring in a financial professional to help guide you through the process.
How to Maintain Financial Health After a Divorce
It isn't all doom and gloom for you financially when you divorce, however. To ensure you stay on the path to financial wellness, here are some things to do during and after your divorce.
- Make a new budget that's built around your life as an unmarried person.
- Continue paying your bills on time.
- Consider increasing your income, either through side hustles, negotiating a raise or bonus or looking for a better-paying job.
- Check your credit report at least once a year, or once a month if you're at an increased risk for fraud or plan to make a big purchase in the near future.
- Be sure all joint accounts you had with your ex-spouse have been handled properly. If they're refusing to comply with the divorce decree, you can take them to court.
- Make a plan for how you'll save for retirement after divorce.
Credit counseling can be a great resource for newly divorced people who need help getting their footing. Qualified counselors can provide financial education and advice for tackling debt that feels unmanageable. The National Foundation for Credit Counseling and the Financial Counseling Association of America are good jumping-off points.
The Bottom Line
It's possible to come out the other side of a divorce on solid ground. Knowing what to expect and planning accordingly can help you avoid unwanted financial surprises along the way. You'll want to untangle your finances from your ex-spouse, make a new budget and take steps to protect your credit.
Enter free credit monitoring with Experian. When the dust is settling after a divorce, you'll be the first to know of any new activity on your credit report.