How to Establish a Solid Financial Foundation After Divorce

Hello! I have another special treat for you this week! Recently, I connected with Leah Hadley, a certified Divorce Financial Analyst and the author of the blog, Great Lakes Divorce Financial Solutions. I had been following her on Pinterest for a while and have always been impressed with her practical financial advice, particularly in the area of basic personal finance. So when she suggested that we do guest posts for each other sites, I jumped at the chance! After you finishing reading this post, be sure to check out my article on Leah’s website, 7 Tips for Social Media During your Divorce.

As I talked about in my article, Budgeting for your Post-Divorce Life, it is so important to start yourself off on a solid financial footing after a divorce or separation. Leah provides some great practical advice on how to do just that.

When the marriage dissolves, it can be hard to figure out what to do next. If you weren’t the one responsible for keeping the finances in order, it could be even more stressful. Here are some steps to establishing a solid financial foundation for yourself after divorce. By taking the time to prepare, you’ll be off to a more stable beginning for this new chapter of your life.

Step 1: Organize Your Financial Documents

Achieving a solid financial foundation starts with knowing which financial documents you have and where they are stored. Consider using a small file box for this purpose. Not only is it easy to transport, but you’ll be able to tuck it into a closet or another small space. If necessary, you may want to consider using a safety deposit box at a bank.

The following is a list of items you should have on hand (if applicable to your situation):

• Birth certificates for you and your children
• Social security cards
• Marriage certificate
• Passport(s)
• Tax returns (for the last seven years)
• Will and other estate planning documents
• Insurance policies
• Rental agreement
• Mortgage and/or other loan documents
• Bank/credit card statements
• Investment/retirement account statements
• Credit report
• Car title
• School records
• Medical records

If you need to request any of these documents, you’ll want to do so immediately.

Step 2: Take a Financial Inventory

Now that you are newly single, it’s important to have a full understanding of your current financial situation. That means it’s time to put together a document that lists all of your assets (bank accounts, real estate, retirement accounts, business interests, valuables, etc.) and liabilities (loans, credit cards, and other debts). Of course, you might not have all of the information, but do your best to include everything that you are aware of. If you don’t know the value of an account, but you know it exists, include it on the list as well.

You should also take this time to consider your insurance coverage. Insurance is one of the key ways that you can protect yourself from major financial losses. Identify the types of insurance you have, the carrier, the owner on the policy, and the benefits and beneficiaries.

Related: Tips for Navigating a Gray Divorce

Step 3: Establish Your Financial Identity

It’s common in marriage to combine all of your finances. However, now that you are on your own, you need your own financial identity. Establishing your own financial identity can feel overwhelming, but it can also be empowering.

To start with, open a bank account in your name. If you are opening an account before you’ve asked for a divorce, make sure that you are aware of the correspondence that will come along with that account. You may want to get a P.O. Box for your mail. Just remember that while banks will send mail to that P.O. Box, they do require a physical address to open the account.

If you don’t have a credit card in your name, open one. Having a credit card in your name is different from being an authorized user on someone else’s account. When you are an authorized user on another person’s account, they can remove you at any time. Also, using that account doesn’t help you establish your own credit history. If you are married, you can use your household income to open a credit card, even if you don’t have your own income. That’s why it’s a good idea to complete this step sooner rather than later.

Make small purchases on your credit card and pay the balance off in full each month. By doing so, you’ll develop a solid history of making consistent payments. Good credit history is necessary for things such as getting an apartment or a loan down the line.

Step 4: Create a Spending Plan

A spending plan, also known as a budget, is critical to the short- and long-term success of your finances. Where do you begin? Start with your income. You’ll want to include your employment income, as well as any other sources of income. If you are not currently employed, do some research on potential jobs to determine your earnings potential.

In addition to income, you need to get a sense of your expenses. When you leave a relationship, you leave half (or more) of the income behind, but that doesn’t ring true for expenses. Here are some categories to consider when you are putting together your list:

• Rent/mortgage
• Utilities (gas, electric, water, etc.)
• Phone
• Groceries
• Childcare
• Insurance
• Medical expenses
• Pets
• Taxes
• Charitable contributions
• Gifts
• Entertainment
• Personal care

Don’t underestimate your expenses. When you have a clear financial picture, it will help you to negotiate spousal and child support successfully.

Step 5: Compare Your Income and Expenses

The tough part comes when you compare the two numbers. Will your income cover your expenses? If your expenses are higher than your income, know that you aren’t alone. Going from one household to two means a significant increase in expenses, often with much less income to work with. In that case, you’ll need to find ways to close the gap between the two.

For some, public assistance may be available to help you close the gap, especially if your children are younger. For others, you may need to look at increasing the number of hours you work or take on a second job. Regardless of the current situation, when you know your starting point, you’ll be able to determine the best way to move forward.

What are the Next Steps to Create a Solid Foundation?

If you followed the steps to create a solid financial foundation for yourself, way to go! Leaving a relationship is extremely difficult, both emotionally and practically. By taking these steps, you are well on your way to financial empowerment.

Depending on your situation, the next steps may look a little different for each person. If you haven’t pursued your divorce yet, I strongly encourage you to meet with a Certified Divorce Financial Analyst. She will guide you through the process and ensure that you are financially ready for your new life ahead.  

About the Author

Leah Hadley is committed to helping her clients make wise financial decisions. She is an experienced mediator, Accredited Financial Counselor, Certified Divorce Financial Analyst, and a Master Analyst in Financial Forensics. After going through her own divorce after ten years of marriage, her goal is to ease the stress of divorce by making the process as painless as possible for couples and individuals alike.

When she’s not working, Leah loves spending time with her family, glamping with her kids, and volunteering with various organizations like the PTA, NAWBO and Girl Scouts. You can find out more about Leah and her services by visiting her website, Great Lakes Divorce Financial Solutions.