Managing finances is the biggest challenge one faces after a divorce. Follow these smart tips that can help you re-organise your finances after a divorce.
Divorce is a financially and emotionally exhausting exercise. When a couple calls it quits, finances are the major cause of worry for both of them. If both husband and wife are working, then divorce means the end of the second income. If you have parted ways with your spouse and are facing some difficult situation money-wise, then it is still possible to rebuild your financial life. A divorce may also put you on an exciting new path and you may use this painful event of life as an opportunity to rediscover yourself and financial freedom.
In this article, we discuss a few smart tips that can help you put your finances in order after a divorce.
Assess Your Income And Expenses
Both the couple should assess their finances in terms of income and expenses to get an idea about how much money would be needed when they start living separately. This will help them better understand their immediate financial situation and funds they would need to maintain their current standard of living. After the separation, you should also start building a corpus that can come handy during an emergency and work on investments that can help in fulfilling your needs post-retirement.
Review Credit Reports
Your credit report indicates your financial well-being and ability to pay off a loan. It’s generally based on past credit history, Credit Card transactions and other factors. Since jointly-held Savings Bank Accounts, credit cards and existing credit lines are closed after a divorce, it can take a toll on your credit history. As such, it’s best to review credit reports, every quarter and take a stock of your existing debt and how you can repay them.
Separate Your Accounts And Documents
After a divorce, all significant financial items should be updated with your correct name. This includes savings bank account, credit cards, insurance policies and title deeds. You can also start a new bank account in your own name and ensure the same has been intimated to your employer and credit card companies. You can take an expert’s help in understanding what all accounts need to be closed/updated on a priority basis. Also, do the necessary documentation and inform respective authorities wherever the title of the asset has been changed. This will save you from uncertain circumstances in the future and also provide a foundation for a new financial start.
Prioritise Your To-dos
It is very important to prioritise your needs once you assess your financial situation. You can begin by analysing your insurance needs and if you’re a custodial parent, then you need to think about getting your child a health insurance plan or possibly including him/her in your plan. Your insurance needs would also require a reconsideration after a divorce. A smart step to take would be to analyse your insurance and ensure all the relevant names are updated.
Take One Step At A Time
Now that the assets, bank accounts, and insurance matters have been dealt with, it’s time to start thinking about your possible lifestyle. The essence is to not take any hasty financial decisions like moving to a new city or getting a new house or building one from scratch for that matter. One of the principles often championed in such situations, is the “Four Walls” theory. It basically says that in such cases, one should look to stabilise the basics – home/shelter, food, transport, and clothing. If you have a roof over your head, food to eat, car to travel and clothes to cover your back, you can slowly build your way back to how it was, or even better.
While the transition period after a divorce can be stressful, a good and long-term financial plan can keep you on track. You should formulate a strategy that yields good result a few years down the line.