While The Dust Settles -- 5 Steps To Controlling Your Post-Divorce Finances


Going through a divorce is a difficult, stressful experience and its after-effects can last for years to come. One area many divorcees have trouble getting under control is the finances of living on their own after a divorce. If you were the lower-earning spouse, have custody of kids or ended up with a change in assets, your finances can easily be thrown for a loop. Here is how you can get back on track in 5 steps.

List Income & Expenses

The first step in controlling your finances is to come up with a workable budget. Write down all your sources of permanent and regular income. This may or may not include child support or alimony, depending on the likelihood of actually receiving this money. If it's possible you may only get this additional income sporadically, it's better to budget without it. 

Adding up and categorizing your expenses is a little harder for most people. This may involve going over bank statements or credit card statements for the past months or a year, then determining what is your own spending and what will continue to be necessary. Overestimating your expenses can be a good idea if you aren't 100% sure about certain categories. 

Reduce Expenses

Most post-divorce budgeters should start out by keeping expenses as minimal as possible until everything is settled in their divorce and their new lives. If your expenses exceed your new income level (or come dangerously close), it's time to look at what you can cut out. This may mean something as simple as trimming entertainment, alcohol or clothing budgets. Or it may mean looking long and hard about whether you can really afford to keep the house or a car payment on your new income. 

Avoid Debt

Experts often recommend avoiding making major decisions for the first year after a divorce, so rein in any temptations to make changes to your financial picture right away. You may find that some sources of income aren't as stable as you first thought (for example, child support) or that you've underestimated your expenses. For this reason, avoid buying anything that involves new debt until you have a good grasp on your budget and long-term goals. 

Understand Your Taxes

Your taxes may change a lot after your divorce, so it's wise to consult with a Certified Public Accountant (CPA). Tax changes may include:

  • Filing status
  • Dependent exemptions
  • Investment reporting
  • Tax bracket
  • Health insurance coverage
  • Retirement accounts
  • Additional forms

It's best to understand these and other tax consequences early in the process so you can plan for them in your new budget -- whether positive or negative. 

Be Fluid

The time after a divorce is a time of change, and this is reflected in your finances and budget. Remember that reductions in your spending is likely to be temporary, so don't be too afraid to go without for a little while. Over time, you will have a better understanding of your real income and expenses and can make different decisions. With time, you can also begin to plan for bigger changes like moving, buying a home or changing jobs. 

All of this can be daunting, particularly if you weren't the spouse who handled the finances while married. If you're unsure about how to create your new budget or what changes you can make to put yourself in a better position, it may be a good idea to meet regularly with your CPA, where you can get the help you need when you need it.   


4 January 2016

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Accounting is the absolute most important element of running a business. If you mess up the bookkeeping even the slightest bit, the entire business could be in trouble. I know how costly a small bookkeeping error can be. About three years ago, I made a seemingly small mistake in the financial records for my business and the next year when I filed my taxes, things were very bad for me. What would have required a small tax payment had suddenly turned into a big tax bill and quite a headache. Since then, I have worked with an accountant and things have been better.