Everyone knows that divorce is expensive, but for many new divorcees, the real financial problems hit during the period after divorce. One recent University of Michigan study found that one of the catalysts, in fact, for filing bankruptcy is divorce.
Unless you’re granted a huge alimony or lots of assets in a divorce, you probably can’t avoid some financial stress afterwards. But by avoiding these six particularly common money mistakes, you can at least regain financial stability more quickly, helping yourself and, if you have kids, your family recover more quickly.
1. Holding on to joint accounts
Way too many divorcing couples keep retirement, loan, credit card, mortgage, and bank accounts joint well after the divorce. This can be a huge problem because as long as your name is still on an account, you can be liable for what happens to it.
What to Do: Even during divorce proceedings, it’s best to cut financial ties with your ex altogether. Don’t leave joint bank accounts or credit card accounts open. Once you think you’ve gotten off all his accounts, pull your credit report just to make sure you aren’t on any hidden or missed joint accounts with your ex.
2. Not moving out of the family home
Women, in particular, are likely to fight for the family home during the divorce, hoping that staying there will give the kids more stability. But staying in the family home is often more than a woman can afford, if she was a stay-at-home mom or was part of a dual-income couple, and fighting to stay can lead to foreclosure or bankruptcy in the future.
What to Do: Remember that no matter how you swing it, a divorce is tough for your kids, but they’re resilient. Do what you can to keep them in their own school system and near their friends, but if you can’t comfortably afford to pay the mortgage on your family home, it’s time to move on to something cheaper.
3. Splurging a little too much
Often, women want to splurge on new clothes, a new hair cut, spa treatments, weekends with the girls, or whatever after a divorce. Sure, you want to get your groove back and relieve some stress, but don’t do it at the expense of your financial stability.
What to Do: Set a monthly budget for splurges like spa treatments and new clothes, and stick to it. A little retail therapy isn’t necessarily a bad thing, as long as you can stay within a reasonable budget and not wreck your finances or rack up tons of credit card debt.
4. Maintaining the same lifestyle
Often times, maintaining the same lifestyle as before the divorce is also done in the name of giving the kids more stability. But unless your husband contributed next to nothing to your family finances or childcare, then you’re just not going to be able to pay for everything that you could afford before.
What to Do: First, set a realistic, manageable budget based on your new income. Then, figure out what you need to cut out of your lifestyle, whether it means selling the new car in favor of an older model, downsizing your apartment, or having the kids choose one sport rather than playing three. Cutting back so that you can manage financially will leave you less stressed out and more able to focus on your family!
5. Forgetting to change the will and insurance policies
Cutting financial ties to your ex-spouse means changing your will and insurance policies, too. Many couples simply forget to do this, but it can have serious consequences if something were to happen to you.
What to Do: If you’re going through a relatively amicable divorce, talk through child-related issues with your wills and insurance policies together. But even if you can’t make decisions for the kids together, make sure that you name a new beneficiary of your life insurance policy and change your will so that your ex-spouse wouldn’t inherit your assets.
6. Not understanding credit
Stay-at-home moms may have the worst time building up credit so that they can get a mortgage or a car loan on their own. If you weren’t listed as a joint on your husband’s accounts and just let him manage all the money, you’ll need to build your own credit quickly after the divorce to secure your financial future.
What to Do: Start by pulling your credit score and credit report. Fix any inaccuracies listed on your report, and then figure out what steps you need to take to build up your credit. One good option is to use a low-interest credit card on a regular basis, paying it off every month. Revolving debt used responsibly is one of the best ways to boost your credit score quickly.
You can find some great low interest cards here: http://www.creditdonkey.com/low-interest/.
Daniela Baker from CreditDonkey.com says going through a divorce is tough enough on you and your children. Don’t make it harder by making haphazard financial decisions after the divorce.