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How to Restructure Your Budget After Divorce

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It’s where no one wants to end up

It’s very rare that a couple gets married thinking anything other than “’til death do us part.” And yet, divorce rate estimates are over 40% in the US. A lot of people end up divorced, and facing the financial reality of that is an important part of the process. Now for the bad news: divorce inevitably has an impact on your finances, one way or another. Here are some tips for creating a post-divorce budget.

post-divorce budget

Steps to take before making your post-divorce budget

  1. Consult a lawyer. If you were aiming for an amicable and affordable divorce, that’s still possible with legal counsel! A lawyer doesn’t mean things have gotten nasty. It means you have someone helping you navigate the very confusing legal landscape of divorce. Even if you’re going with mediation, it’s a good idea to have a lawyer consult on your divorce to make sure you haven’t overlooked anything.
  2. Ensure all finances are completely separate. Close joint accounts, get your own insurance policies (and beneficiaries), divide assets, and financially move on. This is easier said than done but imperative for a clean financial break. A lawyer is a good idea for this step as well.
  3. Consider selling your home. The dissolution of marriage results in two households rather than one. That might mean you now have more house than you need. Even if the house is still the ideal size, it might be too expensive to manage on a single income.
  4. Update your will. This is a good time to update your will, or create one if you haven’t.

Creating the post-divorce budget

  1. Tally all assets and income. Add up any money coming in, including alimony or child support.
  2. List all essential expenses. Insurance, rent/mortgage, car maintenance, groceries, utilities, healthcare. At this point, don’t include things like kids’ extra-curriculars. While it might seem like having your child in gymnastics is critical for their development, it really isn’t essential. Neither is a landline phone, gym membership, cable tv, or a trip to visit your parents on the opposite coast every year.
  3. List all discretionary expenses. This is the place to add the items not to be included as essential. Hair appointments, lunches out, fitness activities, streaming services – those land here.
  4. Compare. How is your income to expense ratio? Do you still have money left over for contributing to investments and savings? Are you comfortable with the numbers you’re seeing?
  5. Prioritize. Decide what matters most to you from the discretionary items and put those at the top of the list. Then, decide which items you are comfortable making changes for. Are you able to truly afford a math tutor for your child, or is it time for you to brush up on trigonometry? Can you begin preparing lunches at home?
  6. Try a budget on for size. Create a budget and stick to it, but track all your spending. This will give you the ability to analyze trends and make changes where you need to.
  7. Revise! Budgets are not permanent. Some people create new budgets for each paycheck or each month. Others see them as living, dynamic documents that are modified as needed.

Handling Post-Divorce Budget Shortfalls

In revising your budget, you may realize you are coming up short at the end of each month. Here are some tips for handling a shortage of cash after divorce:

  1. Do. Not. Take. On. New. Debt. Just don’t. A loan will not get you out of this mess.
  2. Consider buying cheaper groceries, couponing, and price-matching.
  3. Negotiate your monthly bills! There are services such as Trim which negotiate your monthly bills and take a portion of the savings. You can save even more by doing some research and negotiating for yourself.
  4. Consider a side-hustle. The gig economy is booming, and there is money to be made.

Divorce doesn’t have to mean financial ruin. In fact, it could be the fresh start you needed to finally get your financial house in order.

Does anyone have any other good tips for post-divorce budgeting?