How to Recover Financially from a Divorce

After her divorce, Jennifer Bush was left with far less money than she expected. In fact, she lost her life savings.

"A couple years before my divorce we had bought a house that only together we could afford," she recalls. "The bank refused to let either of us assume the mortgage so we were forced to sell our house in the worst possible housing market and walked away with nothing after paying back our mortgage.

"My life savings were invested in that house," she adds, "so I left the marriage with only my 401(k) plan and my work income, having to start over again."

A Certified Financial Planner with MainStreet Financial Planning in Los Gatos, California, she went to work rebuilding her financial life.

"I learned early on post-divorce that I wanted to become financially independent so I could make it on my own and not have to rely on anyone," Bush says. "I assessed my financial situation by making a list of all my expected personal and child-related expenses and found a rental that I could manage on my current income. I tracked my spending, first with Quicken, then with TillerMoney pretty diligently so I knew what my spending actually was," says Bush.

Establishing new savings became a priority.

"As my financial planning career took off and I got raises each year, I saved more and more," Bush says. "I upped my retirement savings at work, built a comfortable emergency fund, then I started contributing to my daughter's 529 college plan."

Like Bush, it is possible to rebuild your financial life after a divorce. Here are some expert financial tips to show you how.

It's time to make a financial separation from your former spouse. It may take some time but end these ties as soon as possible.

"It is not always easy to disentangle finances. Yet, it is critical to do so," says Chris Chen, a Certified Financial Planner at Insight Financial Strategists in Newton, Massachusetts. "Divorcees should do it as soon as reasonably possible so they can move on with their lives "

Anything that has to do with the division of assets, whether it is the retitling of a house, the transfer of a bank or investment account or splitting a retirement plan through a Qualified Domestic Relations Order, has to be dealt with as fast as possible. You don't want to have to come back in a few years to try to pick it up then.

But not every tie can be broken. Child support and alimony may link you to an ex-spouse for years.

"Unfortunately, issues of child support and alimony will keep you entangled with your ex for many years. Remember that it is not forever. If you are receiving it, have you considered getting ready for a time when you won't? Talk to your financial planner about that," Chen says.

Being newly single gives you a new financial outlook. Take a close look at where you are and where you would like to go.

"Make a summary of your assets and any debts and review income and expected expenses. Understanding where you are financially is going to help you make smart financial decisions going forward," Bush says. "Track your spending and adjust as needed to ensure you are living within your means."

Don't forget to change your tax withholding at your job. "Adjust your tax withholding at work to reflect your new marital/family status," Bush says. "If you don't, you could end up having a large tax bill come April 15th."

Now is the time to plan for the future. Where would you like to be in six months or a year? How about five years or 10 years or 30 years?

"Create short- and long-term financial goals and develop a plan to get there," Bush says. "These could include building an emergency fund, paying off debt, saving for retirement, or buying a home. Having clear goals will give you direction and motivation."

Your old joint goals were made with your spouse. What do you want your new goals to be?

"Rethink your planning goals," says Brandon Gregg, a Certified Financial Planner at BBK Wealth Management in Lafayette, Indiana. "It's likely that many of your plans were joint plans and now the whole dynamic has changed. Make sure you understand what your financial goals are currently, as this helps you to navigate your overall financial situation in the present and new goals for the future."

Your marriage has ended and it is time to tear up the old estate plan you did with your ex-spouse and create a new one.

"Take a look at beneficiaries. Many folks forget to update their beneficiaries on items such as retirement accounts and life insurance. This will cause major problems down the road if not updated," Gregg says. "If you had estate plans in place during marriage, then it is likely those documents had your previous spouse's information all over them. It's wise to get these documents updated as soon as possible."

After all the financial changes that happened during and after your divorce, it may be time to revisit and change some of your investments.

"Dividing marital assets, such as bank accounts, investments and retirement savings during divorce, can lead to an imbalance in your investment portfolio," says Leah Hadley, a senior financial planner at Intentional Divorce Solutions in Middleburg Heights, Ohio. This shift may result in a portfolio that no longer aligns with your post-divorce financial objectives or risk tolerance.

"Collaborating with a financial advisor to review and realign your portfolio can help ensure that your investments align with your evolving financial situation and future goals," she says.

If you have debt leftover from your divorce, now is the time to pay it down. You don't want old debt getting in the way of future plans and goals.

"If you walked away from your marriage with debt, look at ways to reduce your interest rates or reorganize to eliminate it. If you can't eliminate it right away, begin paying it down aggressively. Your monthly cash flow will be so much stronger if you're not paying down debt every month," Hadley says.

If you were married for 10 years before your divorce, you may be eligible for Social Security benefits based on your former spouse's work record. You must be unmarried and 62 or older to receive these benefits. In addition, your own Social Security benefit would need to be less than what you would receive under your former spouse's work record.

"Many times Social Security benefits can be a boon for divorcees who otherwise may have received minimal support from the separation," says Jim Blankenship, a certified financial planner at Blankenship Financial Planning in New Berlin, Illinois. "This is especially true if there was significant disparity in income between . . . the couple.

"Understanding your rights as a divorcee and your eligibility for benefits is very important and can make all the difference as you face retirement."

There's no need to reach out to a former spouse to receive these benefits.

"The divorcee needs to know that these benefits are available to them with no required interaction with the ex-spouse, and the ex-spouse's benefits are not affected in any way when you become entitled to these benefits," Blankenship says.