A divorce can impact your finances in a variety of different ways. While many of these impacts can be avoided (or at least mitigated) by careful planning and strategic execution during the divorce process, it is not uncommon for recently-divorced spouses to face greater financial strain than they originally anticipated.
If you recently finalized your divorce, what can you do to rebuild your finances? While everyone’s circumstances are unique, here are nine steps that you will be able to take to rebuild your finances and move toward financial stability:
1. Check Your Credit Score
You need to take stock of your situation. Make sure you have a clear understanding of the assets you retained in your divorce and of your obligation to pay (or right to receive) child support and alimony. Check your credit. Getting divorced will not have a direct impact on your credit; however, if you don’t know your credit score, it is good to know where you stand – and to do what you can to make sure you will be able to borrow funds if necessary.
2. Start Building Your Own Credit History
If you relied on your spouse’s credit during your marriage, you may find that you have very little personal credit history. If this is the case, it will be important to start taking the steps necessary to prove your creditworthiness to potential lenders. For many people, this means taking out a credit card. But, there are other options available.
If you’re a homeowner with a mortgage, your loan activity will appear on your credit report. Payments towards student loans will also help build credit. What many don’t know, is that you can even build credit from your rent payments. Credit bureaus typically don’t see your rent payment history, but you can make that data available to them. When you partner with a third-party company like RentReporters.com or RentTrack.com, the sites will report positive rent payments to the credit bureaus on your behalf, helping you rebuild you finances with your basic necessities.
3. Stick to a Budget to Help Rebuild Your Finances
In this same vein, many newly-divorced individuals will find it beneficial to formulate and stick to a budget. This is particularly true for individuals who are not used to managing their finances or who have a penchant for spending heavily on things like entertainment and luxury items.
4. Make Sure You Know How Much You’ll Owe in Income Tax
Especially in the first year after getting divorced, it is a good idea to make sure you know what you will owe to the IRS come tax time. Divorces have several potential income tax implications, and the withholdings from your paycheck (or your pre-divorce estimated quarterly payments) may not necessarily reflect what you will owe.
5. Protect Your Right to Financial Support
If you are entitled to child support or alimony and your former spouse doesn’t pay, you have the right to enforce your right to payment (plus interest) in the California courts.
6. File for Modification of Your Support Obligations, If Necessary
If you are obligated to pay child support or alimony and you lose your job or your business starts to struggle, you may be entitled to file for a modification of your support obligations in court. However, it is important not to stop paying until you have a new court order, as failing to make payments can make your financial situation even worse, causing you to not rebuild your finances.
7. Build a Rainy-Day Fund
From paying your bills to paying your former spouse, having a rainy-day fund can help you avoid financial disaster if times get tough. After a divorce, it is a good idea to save what you can, even if it means waiting to buy some of the things on your wish list.
8. Consider Seeking Professional Advice
Many divorcees will find it beneficial to work with a financial planner and an accountant, particularly in the early stages following a divorce. Experienced professionals will be able to help you spend and save smartly, maximize your deductions and keep as much of your money as possible.
9. Consider a Prenup Before You Remarry
Finally, before marrying again, consider asking your new partner to enter into a prenuptial agreement. By planning ahead, you can use the lessons learned from your divorce to help protect your financial future.
Request a Consultation with North County, San Diego, CA Divorce Lawyer Richard M. Renkin
Richard M. Renkin is a North County divorce lawyer and Certified Family Law Specialist. If you have questions about the financial implications of divorce, you can call 619-299-7100 or inquire online to request a confidential consultation.