On the whole, people take a great comfort in permanence and regularity. No one gets married expecting to get divorced any more than they go to Egypt expecting to see the pyramids crumble into sand. Nevertheless, the pyramids are eroding and divorce rates have been increasing steadily.

Unfortunately, divorce rates are still expected to climb and they don't have the help of a pyramid restoration project to control the damage. When a divorce happens, it has a shattering effect on all areas of a person's life, including their financial stability. This article will look at how to get through a divorce while keeping your finances in the best possible shape. (For insight on divorce and retirement planning, see Getting A Divorce? Understand The Rules Of Dividing Plan Assets.)

Tutorial: Budgeting Basics

Divorce and Debt
One of the most difficult things about a divorce is deciding who gets what. Spouses both have a financial and emotional investment in everything from the house to the stamp collection they kept together. People in the process of divorce usually do not feel overly charitable toward their soon-to-be ex-spouse, so their main concern is that they get what they feel they deserve from the settlement. This is why couples often focus on who gets assets and how future income will be divided while overlooking debts and loans.

It's better to sort these things out quickly and cleanly to avoid having the lawyers step in and drag out the process considerably - which can be both financially and emotionally draining.

Divorce Mediation
To avoid having your lawyers step in, you have to remember that continued litigation isn't easy on you or your pocketbook. Often couples who engage in prolonged court battles find that the objects of contention are often worth less than the emotional and financial strain of continuing to bark at each other via lawyers. For most people, some form of mediation would be ideal. That way it is not a case of one or the other having to be the bigger person or both people fighting tooth and nail, but rather a process of agreement reached under the supervision of an impartial third party.

In many cases, mediation can save divorcing couples a lot of money. Case in point, when it comes to your residence, you are usually better off (emotionally and financially) selling it and splitting the cash. With investments however, it is advantageous if you can sign them over rather than liquidating them and passing on the cash. If you are forced to sell shared investments by court order, you will lose money in fees and taxes. Instead, it is better if you and your spouse can agree through mediation to sign over portions of the portfolio. This way you can avoid the fees and any tax burdens that come with selling. (Determine how assets will be divided before you get married with a prenuptial agreement. Learn more about them in Marriage, Divorce And The Dotted Line.)

The Aftermath of a Divorce
The unhappy fact is that, once the terms of your divorce are settled, you will be poorer than you were during your marriage. The upside is that you will know exactly where you stand financially and what you need to do to get back on track

The first thing to do is to evaluate what is left and make sure that everything is truly finished. Make sure you:

If you were the primary earner in the family, you will still take a hit financially through alimony. And even if you were not, you will still have less income than you did before.

Rebuilding After a Breakup
In most cases, both parties of a divorce have to work after a divorce just to make ends meet. Even if you were a dual-income couple, you no longer have the advantage of a single residence with shared costs. Every expense and utility becomes yours and yours alone. The best survival method is to downsize your lifestyle. For some, this merely means a smaller apartment or more modest vacations, but for many, and particularly for spouses who worked at home while their other half was the primary earner, this can involve a significant change.

This drop in lifestyle can be made more palatable if you have a basic plan to work yourself back up. You can no longer depend on anyone else to help organize your finances, so you will have to plan your budget, savings and investments by yourself. If you weren't the primary breadwinner, you have two challenges ahead of you: making up for lost income and rebuilding your credit. Although the credit you enjoyed as a couple may have been good, a divorce can potentially damage the individual credit of both parties. This is why most people find themselves renting for two or three years following a divorce. If you don't have a history of regular income and a decent credit rating, it is difficult to get a mortgage. (To find out how to get back on top of your finances, see The Beauty Of Budgeting, The Indiana Jones Guide to Getting Ahead and Mortgages: How Much Can You Afford?)

It is vital that you pay down any remaining debt from your marriage. Even if all the debts are settled, some couples come out of a marriage unable to qualify for a credit card. Fortunately, there are smaller types of consumer debt, store credit cards and simple loans that will help you to begin a new credit history. Paying them down diligently will have you back in the good books sooner than you may think. The important thing is that you do pay them down on time and, as soon as you can, move to better credit vehicles as your credit rating improves. (Keep reading about credit in The Importance of Your Credit Rating and Understanding Credit Card Interest.)

Conclusion
One of the few advantages to divorce is that you are able to alter your spending habits and lifestyle drastically. Take this time to bone up on personal finance and get your budget into shape. The more amicable you and your spouse's divorce settlement is, the less damage there will be to repair in your overall financial situation. As difficult as it is, the best way to keep your finances intact is to say goodbye to your relationship with the same grace as you started it with.

Related Articles
  1. Credit & Loans

    Can Corporate Credit Cards Affect Your Credit?

    Corporate cards have a hidden downside. If the company fails to pay its bills, you could be liable for the amount and end up with a damaged credit rating.
  2. Professionals

    Top Social Security Issues for Divorced Women

    What female divorcees need to know about the twists and turns of figuring out Social Security benefits.
  3. Home & Auto

    4 Areas to Consider Roofing Material Types

    Roofing your home is very important, that’s why you should choose a roof specifically designed to handle your area’s climate.
  4. Investing News

    What Is The New Credit Card Chip Good For?

    Under current U.S. credit card requirements, credit card issuers are required to issue chip cards as of October 1, 2015. Instead of swiping your card as you do now, you will slide the card into ...
  5. Credit & Loans

    5 Ways to Maximize Your Credit Card Points

    How to get the most bang for your rewards buck.
  6. Investing

    How to Effectively Compare Credit Card Rewards

    There are so many different reward credit cards that are available. Understanding how each type work will help you pick the best card for your needs.
  7. Credit & Loans

    Joint Credit Cards: The Pros and Cons

    A joint credit card may sound like an easy way to split the bills, but make sure you know what you’re getting into first.
  8. Credit & Loans

    Travel Tips: Avoid Exchange Rate Headaches

    How to avoid the most common issues and hassles raised by exchange rates while traveling abroad.
  9. Investing

    Why U.S. Credit Cards Are Getting a Chip and Pin

    With the introduction of EMV technology into U.S. credit cards, consumers should worry less about fraud and counterfeiting.
  10. Credit & Loans

    What Qualifies as a Nonperforming Asset?

    A nonperforming asset is a loan made by a financial institution to a borrower who has failed to make any scheduled payments for at least 90 days.
RELATED TERMS
  1. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  2. Transferable Points Programs

    With transferable points programs, customers earn points by using ...
  3. Luhn Algorithm

    An algorithm used to validate a credit card number.
  4. Roll Rate

    The percentage of credit card users who become increasingly delinquent ...
  5. Truncation

    The requirement mandated by the FTC for merchants to shorten ...
  6. Purchase Money Security Interest ...

    A security interest or claim on property that enables a lender ...
RELATED FAQS
  1. How soon should I start saving for retirement?

    The best answer to the question, "How soon should I start saving for retirement?", is probably, "yesterday," and the second ... Read Full Answer >>
  2. How are Social Security benefits calculated for divorced spouse?

    The maximum Social Security retirement benefit payable to a divorced spouse is 50% of the amount that would be paid to the ... Read Full Answer >>
  3. How does divorce affect Social Security benefits?

    If you are eligible to receive Social Security retirement benefits on your own account, your marital status has no impact ... Read Full Answer >>
  4. Can a divorced woman collect Social Security from her ex-husband?

    While a number of conditions must be met, a divorced woman is able to collect Social Security benefits through her ex-husband. ... Read Full Answer >>
  5. Can I use my 401(k) as a collateral for a loan?

    Although federal Internal Revenue Service, or IRS, regulations prohibit using a 401(k) account as collateral for a loan, ... Read Full Answer >>
  6. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!