Going through a divorce is emotionally challenging, but the financial stress that comes with splitting one household into two can feel equally overwhelming. Running two separate homes often costs up to 40% more than maintaining a shared one, making budget management one of the most vital aspects of the divorce process. Fortunately, with strategic planning, open communication, and smart financial decisions, you can navigate your separation without destroying your savings or compromising your long-term stability. Here are 10 practical tips to make divorce easier and far more affordable.
1. Work Together Financially
If at all possible, work together with your spouse to face the financial difficulties and work out a plan to deal with the existing household and family finances. This is not easy without help, especially if the last person you want to cooperate with or trust is your about-to-be ex-spouse. So use a professional to help. Work with a mediator, a financial advisor, your accountant, a marriage counselor, or even a mutually trusted friend with the skills to make the best of your existing financial situation. Facing the realities is more difficult for some than others. Running two households costs about 40% more than running one.
2. Maintain Credit Lines
Do not terminate lines of credit. Make agreements about acceptable use or limits on use of the credit lines and credit cards, but don’t terminate them. You may not be able to replace that credit once it is terminated. The same goes for open home equity lines of credit. Terminating lines of credit that are in good standing will lower your credit score, which translates to higher interest rates for future borrowing. Open lines of credit and credit cards may offer you more flexibility in the structure of your final settlement.
3. Explore Housing Options
If the reality is that once the marital home is sold, neither will be able to replace it with another home, then consider these options before you agree to sell your home:
- Housing for Children: What housing do you want for your children? Can you afford to maintain the existing home for your children under arrangements that would not have been so traditional in better economic times? For how long?
- Alternative Living Costs: What will it cost for you or your spouse to maintain housing for your children under alternate arrangements, including rentals and living with extended family?
- Co-Living Under One Roof: Is there any way to live separately but under the same roof? Establish a separate room for each of you with privacy assured by locks and agreements, and quarters for the children. Not everyone can live this way, but many did during housing downturns until the market improved and they could obtain an agreed price for the sale of the home. Once you have a written agreement about what will happen to the marital home, you can get divorced without selling the house. Further, appropriate language in a divorce agreement may preserve the $250,000 capital gains exclusion for each of you, ensuring neither of you loses equity to taxes upon sale.
- Mortgage Assumption: If refinancing is not possible to remove one spouse from liability on the existing mortgage, but the carrying costs are manageable, the in-the-house spouse can assume responsibility for the mortgage so long as it is paid on time each month. The out-of-the-house spouse can retain more retirement assets to offset equity. An agreement should require the home to be listed for sale if the mortgage falls 60 days behind.
- Dual Property Purchase: In higher-income situations, sometimes a couple can purchase two homes using their joint credit, and if they divorce, each spouse can agree to own, live in, and maintain one of them, allocating the rest of the income and assets through child support, alimony, and equitable distribution.
- Continued Joint Ownership: Two people can continue to own the marital home after divorce and assign the right to live in it and the obligation to pay for it between themselves. Years later, when housing values have recovered or the children have grown, the home can be sold, refinanced, or bought out. A co-owner out of the house who pays toward mortgage interest and property taxes may also continue to deduct those costs on taxes.
- Thinking Outside the Box: Could the house be leased for a year or two and the mortgage and taxes paid by the rent? Is there a relative who might co-sign or provide credit? If the house must be sold at a major loss, is a short sale an option?
- Long-Term Relocation Impact: Look ahead to alternative housing options available for your former spouse and children. Sales of marital homes can bring about out-of-state relocation issues for children that might otherwise be avoided if the home is maintained a few years longer.
4. Plan Long Term
Carefully explore the alternatives and options before committing yourself, your children, or your spouse to one direction. Avoid short-term, impulsive actions that limit long-term financial alternatives or flexibility for one or both of you. Making decisions out of anger or frustration now can lock you into legal or financial burdens that take years to unwind. Taking the time to evaluate how every choice impacts your future financial independence ensures a far smoother transition.
5. Pay Down Debt
While you are still in the same household and your combined costs are at their lowest, work together to pay down shared debt. Prioritize paying off high-interest debt first to reduce your monthly financial burden after splitting into two households. It is much easier to tackle joint balances together using shared income before you are both hit with separate rent, utility, and grocery bills. Clearing or reducing these liabilities now will also prevent messy disputes during the final asset and debt division.
6. Secure Health Coverage
Each of you will need health coverage when you are divorced. The least expensive way to obtain this is through group employment. Kids are usually covered on group policies at a relatively low cost. When making changes to your employment, look for jobs that offer participation in group health coverage. The transition can be aided by COBRA coverage from larger employers, allowing the uncovered spouse to continue coverage for up to 36 months after divorce while securing a new policy.
7. Strategize Future Employment
With increasing living costs, many individuals must re-enter the workforce, retrain, or extend their working years beyond standard retirement age. If you are adjusting your career path, choose growing fields that can accommodate part-time or flexible hours as an older employee.
8. Preserve Major Assets
Do not force the liquidation of housing and retirement assets while market values are low if it is not the best financial decision under the circumstances. Consider options that allocate assets in kind or share the risks of asset values changing over time. Diversification, where each spouse retains a portion of each asset type, is generally a safer path than forcing an immediate asset fire sale.
9. Educate Your Children
Decide whether to shelter children from a financial downturn or use it as a learning opportunity to teach them financial resilience and the enjoyment of simpler things. Involve older children in frank discussions about cost-conscious alternatives like home-based family vacations or game nights. Present a united, non-blameful front with your ex-spouse, and consult a family psychologist if you disagree on how to address these economic changes with your kids.
10. Choose Divorce Mediation
Get your own independent legal advice, but spend your effort and resources working through issues to reach an agreement in mediation. Mediation gives you significantly more value for your money compared to costly court battles. As long as both parties approach mediation in good faith and remain completely transparent about income, expenses, assets, and liabilities, the final outcome will be better for you, your former spouse, and your children.
Conclusion
Divorce does not have to result in financial ruin. By choosing cooperation over conflict, exploring creative housing solutions, protecting your credit, and utilizing cost-effective resolution methods like mediation, you can preserve your assets and protect your family’s future. Making thoughtful, long-term decisions today will give you the stability and financial freedom you need as you start your next chapter.
Need Help Navigating Your Divorce on a Budget?
Protecting your rights and your bank account shouldn’t be mutually exclusive. Whether you need full representation, mediation assistance, or limited-scope legal advice tailored to your budget, the team at Modern Law is here to help.
Contact us today at (480) 470-7731 or visit us online at Modern Law to schedule a consultation with an experienced family law attorney.
