Kim Finkle, MBA, Financial Advisor Having a conflict with your co-parent or partner? - Start Neutral Mediation

1. Prepare a New Budget

Since you are expecting a drop in income and have access to fewer financial resources you need to develop a new budget. If you have children then your budget should take into consideration how much child support, partner support, and monthly income from other sources you will need to sustain yourself. You should also consider what if your ex can no longer pay you the child support or partner support. If you are planning to be a stay-at-home mother, how would you feed yourself and your children if your ex is unable to make payments? Also, if your children will soon become adults then your ex will no longer be obligated to support them.

 

To develop a budget, you should make a list of every expense that is recurring monthly. You should also make a list of bills that you will pay bi-monthly, quarterly, every 6 months, or annually. For example, you might end up paying some utility bills every other month, property taxes every six months, or an insurance premium annually. You should also add monthly clothing, food, transportation expense, and any possible emergency expenses. Examples of emergency expenses are - car repair, medical co-pay, or an out-of-town family trip to attend a funeral of a loved one. If you are planning to take any classes to retrain yourself that should also be taken into the account. In addition to that, you should also budget for investing in your children's college education fund, and your 401k or IRA to fund your retirement. Your total budget shall not exceed your income.  

 

Once your draft budget is ready, it may be wise to have a financially savvy friend or a financial advisor review it. If the reviewer gives any feedback to make changes then be open-minded about it. A good budget can be the foundation for your long-term financial success after the divorce.

 

2. Maintaining a House After Divorce

In most divorce cases wife usually ends up keeping the house because she became the primary custodian of children. In some incidents, the husband may end up keeping the house too. In other incidents, one spouse buys the house from the other by doing a cash-out mortgage refinance, or they simply sell the house.  

 

If one of the spouses ends up with the house, whether they can afford to maintain it or not entirely depends on their income and other financial resources. Being able to win the homeownership battler from the other spouse can be very gratifying emotionally. However, it might not make any financial sense because the money locked in the home equity cannot be used to pay bills. House maintenance and repair costs can run into thousands of dollars and depending on the location and value of the house property taxes can be a big burden too.

 

But this doesn't mean that a single parent entirely cannot afford to keep the house. Several hacks can make housing more affordable.

 

• Renting and Downsizing: You can rent your current house and use that money to buy or rent a smaller home.
• House Hacking: Renting a room or a separate basement to a third party. That can generate enough income to pay property taxes and other maintenance costs. However, it comes at an expense of compromising your privacy.
• Birdnesting: You or your spouse can rent another property nearby and live in the house in alternate weeks so that children do not have to shuffle around between two homes. This is not very practical but doable.
• Home Equity Loan or Cashout Refinance: You get a home equity loan or do a cashout refinance and use the funds to maintain the home. However, you will have to pay back the loan over time.
• Finding Another Partner: Since you are no longer in your current relationship, finding a new partner is an obvious choice. Both you and your new partner can live in the current house and they can help out with the home expenses or both of you can move into an entirely new home and use the rent from the current house to pay your share.

 

If it is obvious that you cannot afford to keep the house, do not cling to it. It is better to sell it and take the money than to get foreclosed. If your house value is lower than what you paid for it, the bank will not refinance it regardless of how good your credit score is. At that point, it would be prudent to sell it regardless of the losses. This will save your credit can you can buy another property.

 

3. You must know your assets

Usually during the divorce one spouse attempts to hide some of the assets by getting rid of all the paperwork or transferring funds/assets to family and friends. Before, during, and after the divorce, you should know exactly what you own. Courts require both parties to submit their asset list during the divorce. This includes the value of each asset and who owns what percent of it. After a divorce you should have the list of the following:

• Business Value (if any)
• Cash and Jewelry Value
• Cash Value of Life Insurance
• Real Estate Value
• Retirement Assets

 

If your ex has bought a life insurance policy with your children as beneficiaries, then you need to make sure that he doesn't change the beneficiaries to someone else after the divorce including their new partner.

 

You also need to know the after-tax value of all the assets you own. For example, if your house is worth $500K with $200K in equity and you decide to sell it, after paying any outstanding loans and taxes what would be your take home. Similarly, at what rate your 401k or IRA plans will be taxed when you split them with your ex. You should also know any penalties that you will need to pay for early withdrawals. 

  

4. What about Social Security and Pension Plan

Divorce can have significant implications on one's financial future, particularly concerning Social Security benefits and pension plans. Any pension plans will be divided equally at the time of divorce. Depending on the plan and the agreement between the spouses, either cash can be taken out at the time of the settlement or upon retirement. In either case, it will be taxable. Both partners will be able to collect their social security benefits upon retirement.

Here's an overview of how these aspects are generally affected after a divorce:

 

Social Security Benefits After Divorce

1. Eligibility Based on Ex-Spouse's Record

• If you were married for at least 10 years, you may be eligible for Social Security benefits based on your ex-spouse's record, even if they have remarried.
• You must be unmarried to claim benefits on your ex-spouse's record.

2. Benefits Calculation

• The benefit you receive based on your ex-spouse's record does not impact their benefit or the benefit of their current spouse.

3. Full Retirement Age (FRA) Considerations

• You can claim benefits based on your ex-spouse's record at your full retirement age, and you may receive a higher benefit if you wait until your own retirement age.

4. Ex-Spouse's Marital Status

• Your ex-spouse does not need to have started claiming their benefits for you to be eligible for benefits based on their record.

5. Impact of Remarriage

• If you remarry, you generally cannot claim benefits on your ex-spouse's record unless your subsequent marriage ends.

 

Pension Plans

1. Qualified Domestic Relations Order (QDRO)

• A QDRO is a legal order that may be used to divide retirement or pension plan assets between divorcing spouses.
• It allows the non-participant spouse to receive a portion of the participant spouse's retirement benefits.

2. Defined Contribution Plans

• In plans such as 401(k)s, the non-participant spouse may receive a lump-sum distribution or roll their share into an Individual Retirement Account (IRA).

3. Defined Benefit Plans

• For pension plans that offer a monthly benefit, a QDRO may specify how the benefits are divided between the participant and non-participant spouse.

4. Survivor Benefits

• In the event of the participant spouse's death, a QDRO can also specify whether the non-participant spouse is entitled to survivor benefits.

5. Non-Qualified Plans

• For certain executive or non-qualified plans, division may be more complex, and legal advice is often crucial.

It's essential to consult with legal and financial professionals to navigate the complexities of dividing assets, including Social Security benefits and pension plans, during and after a divorce. The specific rules and options can vary based on state laws, the type of retirement plan, and individual circumstances.

 

5. How to Re-Build Your Credit After Divorce

Most likely after divorce the credit score of both of the spouses will take a hit. It can increase their borrowing rates and insurance premiums. By getting a new no fee or low fee credit card you can rebuild your credit in a few months. However, your loan rates and insurance premiums won't' drop automatically. You will have to reapply for them or find entirely new providers to get lower rates.

 

Rebuilding credit after a divorce is a crucial step towards financial independence and stability. The divorce process can impact your credit score, particularly if joint accounts were involved. To start, obtain copies of your credit reports to assess the damage and identify areas for improvement. Close joint accounts if possible to prevent further financial entanglements with your ex-spouse. Establishing credit in your name, such as obtaining a secured credit card, allows you to demonstrate responsible financial behavior. Timely payments on existing debts, like car loans or student loans, contribute positively to your credit history. Additionally, consider creating a realistic budget to manage your finances effectively. Seeking the guidance of a financial advisor can provide tailored strategies to rebuild credit and pave the way for a solid financial future post-divorce.

 

6. Invest and Save Regularly

Investing and saving regularly after a divorce is a commendable step toward securing your financial future.  You should invest and save regularly after divorce. Go for a marathon instead of a sprint. Any expense you need to make, question it twice before moving forward.  Here's a step-by-step guide to help you navigate this process:

 

• Assess Your Financial Situation: Start by evaluating your current financial status, including assets, debts, and monthly expenses. Understand your cash flow to determine how much you can comfortably allocate toward savings and investments.
• Create a Realistic Budget: Develop a detailed budget that outlines your essential expenses and discretionary spending. This will help you identify areas where you can cut back to redirect funds towards saving and investing.
• Emergency Fund: Prioritize building or replenishing an emergency fund. Aim for three to six months' worth of living expenses in a liquid, easily accessible account. This fund acts as a financial safety net in case of unexpected expenses.
• Debt Repayment: Focus on paying down high-interest debts. Reducing debt not only frees up more money for saving and investing but also improves your overall financial health.
• Explore Retirement Accounts: Contribute to retirement accounts such as a 401(k) or an Individual Retirement Account (IRA). If your employer offers a matching contribution, try to contribute enough to maximize this benefit.
• Diversify Investments: Diversification is key to managing risk. Consider a mix of assets such as stocks, bonds, and real estate to create a well-rounded investment portfolio. Diversification helps spread risk and optimize returns.
• Automate Contributions:  Set up automatic transfers to your savings and investment accounts. Automation ensures consistency and helps you stick to your savings goals without the need for constant manual intervention.
• Educate Yourself: Take the time to learn about different investment options and financial instruments. Understanding the basics of investing can empower you to make informed decisions aligned with your financial goals.
• Seek Professional Advice: Consider consulting a financial advisor to create a personalized investment strategy. A professional can provide insights tailored to your specific situation and guide you through the complexities of the investment landscape.
• Monitor and Adjust: Regularly review your investment portfolio and adjust it based on changes in your financial goals, risk tolerance, and market conditions. Rebalancing ensures that your investments stay aligned with your objectives.

Remember, the key to successful saving and investing is consistency and discipline. Start with small, achievable goals and gradually increase your contributions as your financial situation improves. Patience is crucial in investing, and over time, your disciplined approach can lead to financial security and wealth accumulation.

 

7. Gain New Skills

Gaining new skills after a divorce can be a transformative and empowering step toward personal growth and career development. While it may be difficult with children, you should try gaining new skills to increase your income. Several online sites such as Coursera, edX, and Udemy offer courses and certifications at a very low cost. Several large corporations also provide free training so that you can start your own consulting business for their products.  You may be able to qualify for federal financial aid or a single parent scholarship.

Related: 529 College Savings Plan

Here's a guide to help you embark on this journey:

• Self-Reflection and Goal Setting: Begin by reflecting on your interests, passions, and long-term goals. What skills align with your aspirations? Set clear, achievable goals for skill development.
• Identify Relevant Skills: Consider the skills that are in demand in your desired field or industry. Research job postings, talk to professionals, and identify the skills that can enhance your employability or personal life.
• Online Courses and Certifications: Leverage online platforms like Coursera, Udemy, or LinkedIn Learning to access a wide range of courses. Many of these platforms offer certifications upon completion, adding value to your resume.
• Community College or Vocational Courses: Local community colleges often provide affordable courses in various subjects. Explore vocational programs that offer hands-on training and practical skills relevant to specific industries.
• Networking and Mentorship: Connect with professionals in your desired field. Networking can provide valuable insights into the skills needed and potential avenues for skill development. Seek mentorship from individuals who have successfully navigated similar transitions.
• Professional Associations and Workshops: Join professional associations related to your field of interest. Attend workshops, conferences, and events organized by these associations to stay updated on industry trends and acquire new skills.
• Volunteer Opportunities: Volunteer work can be a fantastic way to gain hands-on experience and develop practical skills. Look for opportunities that align with your interests and allow you to contribute while learning.
• Utilize Employer Resources: If you're currently employed, explore whether your employer offers training programs, workshops, or tuition reimbursement. Many companies invest in the professional development of their employees.
• Read and Stay Informed: Books, articles, and industry publications are valuable resources for learning. Stay informed about the latest trends and innovations in your field to remain competitive.
• Practice and Apply Skills: Learning is most effective when combined with practical application. Look for projects, freelance opportunities, or ways to integrate your new skills into your personal or professional life.
• Seek Support and Accountability: Share your goals with friends, family, or a support group. Having a support system can keep you motivated, and sharing progress can create a sense of accountability.
• Embrace Lifelong Learning: Recognize that learning is a continuous process. Embrace a mindset of lifelong learning, staying open to acquiring new skills throughout your personal and professional journey.

Gaining new skills after a divorce is not just about career advancement; it's a pathway to personal enrichment and resilience. It allows you to redefine your identity, explore new passions, and build a foundation for a fulfilling post-divorce life.

 

8. Get A Side Hustle

Embarking on a side hustle post-divorce can be a transformative way to bolster your financial situation and explore new avenues of personal and professional fulfillment. Whether it's freelancing, consulting, or launching a small business, a side hustle offers the flexibility to supplement your income and potentially turn your passion into profit. Leverage your existing skills or explore areas of interest to identify a side gig that aligns with your expertise and schedule. Online platforms like Upwork, Fiverr, or Etsy provide accessible platforms to showcase your talents. Beyond the financial benefits, a side hustle can instill a sense of purpose, boost self-confidence, and broaden your network. As you navigate the landscape of post-divorce life, a well-chosen side hustle can be a dynamic and empowering step toward financial independence and personal fulfillment.

 

9. Do Not Bailout your Ex

Regardless of how bad things are for them, do not entangle yourself in your ex's financial mess. Your life except your shared kids and money are separate now. By extending financial help you will set yourself up for being taken advantage of. If your ex cannot pay child support, Child Protective Services need to be aware of that.  

 

Resisting the urge to bail out your ex financially after a divorce is crucial for both parties' long-term financial well-being and personal growth. While the desire to assist a former spouse in times of financial hardship may be rooted in empathy, it's essential to maintain clear boundaries. Enabling financial dependency can hinder your ex's ability to develop resilience and independence. Moreover, it may strain your own financial resources, jeopardizing your post-divorce stability. Encouraging self-sufficiency fosters individual growth and ensures that both parties can navigate their financial journeys independently. Setting healthy boundaries in the realm of post-divorce finances is an important step toward fostering autonomy and moving forward with the lessons learned from the divorce experience.

 

10. Hire a CPA / Financial Advisor

Hiring a Certified Public Accountant (CPA) or financial advisor is a strategic move that can significantly impact your financial stability and planning, especially after a major life event like a divorce. These professionals bring a wealth of expertise in tax laws, financial planning, and investment strategies, offering tailored advice based on your unique circumstances. A CPA can ensure that you navigate tax implications efficiently, maximizing deductions and minimizing liabilities. On the other hand, a financial advisor can guide you in creating a comprehensive financial plan, from budgeting and debt management to investments and retirement planning. Their insights provide a strategic, long-term perspective that aligns with your financial goals. In the aftermath of a divorce, where financial complexities may arise, engaging the services of a CPA or financial advisor not only empowers you with informed decision-making but also brings a sense of confidence and stability to your post-divorce financial landscape.

 

11. Use Social Programs 

Leveraging social programs is a crucial step in establishing a solid financial foundation after a divorce.  If needed don't hesitate to ask for help at your local social services or welfare office.  There is are several progams that can be helpful.  There might be also some programs offered by a local non-profit or religious establishment.  Programs like unemployment benefits, food assistance, and housing support are designed to provide a safety net during challenging times, offering immediate relief while individuals navigate post-divorce adjustments. These programs can be instrumental in covering essential needs, allowing individuals to redirect their financial resources toward rebuilding their lives. Additionally, exploring educational and job training programs within the social system can enhance skills and increase employability, facilitating long-term financial stability. Recognizing and utilizing these social programs not only mitigates immediate financial stress but also provides a structured pathway toward self-sufficiency, enabling individuals to regain control over their financial destinies after a significant life change.

 

Conclusion

In the aftermath of divorce, achieving financial success requires a strategic and thoughtful approach. By assessing your financial situation, creating a realistic budget, and prioritizing savings, you can lay the groundwork for stability. Tackling shared debts and building an emergency fund provide a buffer against unexpected challenges. Rebuilding credit, exploring income-boosting opportunities, and seeking professional advice contribute to a comprehensive financial strategy. Embracing a mindset of financial empowerment, seeking support networks, and leveraging social programs can be pivotal steps toward reclaiming control over your financial future. Remember, the journey to financial success after divorce is not about quick fixes but rather a commitment to ongoing learning, adaptability, and resilience. By implementing these tips, individuals can navigate the complexities of post-divorce finances with confidence, setting the stage for a secure and prosperous future.

 

Related:

How to split expenses with your ex?

Should I pay my ex's bills?

Should I split the Christmas bonus after the divorce?

Holiday budgeting tips for single parents

How to split money during divorce?

Raising Fiscally Responsible Kids

Divorce Taxes

How to get cheap car insurance after divorce

Can my spouse withdraw money from our joint bank account?

How to get a mortgage after divorce?

How to get a credit card after divorce?

Renters insurance for co-parents

Filing taxes after a divorce

How to transform co-parenting into a Disney like magical experience

Warning:  This post is neither financial, health, legal, or personal advice nor a substitute for the advice offered by a professional. These are serious matters, and the help of a professional is recommended as it can impact your future.