Best Money Moves After Your Divorce

Divorce is a major life transition, and while the emotional toll can be significant, the financial implications are just as critical. Many individuals find themselves navigating unfamiliar territory, managing money on their own for the first time in years. Whether you’ve come out of your divorce with a financial setback or in a stable position, making smart money moves now can set you up for long-term financial success.

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1. Assess Your Financial Situation

Before making any major financial decisions, take stock of your current financial picture. Ask yourself:

• What are my total assets (cash, investments, property, etc.)?
• What debts do I have (credit cards, loans, mortgage)?
• What is my monthly income and necessary expenses?

A great starting point is creating a simple budget that outlines your cash flow. Many people focus on net worth (assets minus liabilities), but an even more immediate concern is cash flow. Are you bringing in more than you’re spending? If not, changes need to happen.

2. Establish a Budget and Cut Unnecessary Expenses

Budgeting may not be exciting, but it’s an essential step. If you’re newly single, your expenses have likely changed. Things like rent/mortgage, utilities, groceries, and even entertainment might look different now.

Consider:

• Reviewing your last few months of bank statements to see where your money is going.
• Using financial tracking apps (like Mint or YNAB) to categorize spending and spot problem areas.
• Identifying big-ticket expenses that may need adjusting—luxury car payments, vacations, or expensive memberships.

Think of this stage as a financial reset. It might be tough to make cuts, but this isn’t permanent—it’s about getting stable so you can rebuild wisely.

3. Prioritize Debt Repayment

If you’re coming out of your divorce with significant debt, it’s time to create a plan. Not all debt is equal—some, like a mortgage or a student loan, may be manageable, while others, like high-interest credit card debt, can be dangerous.

There are two common approaches to paying off debt:

• Debt Snowball Method: Pay off the smallest balance first while making minimum payments on other debts. This provides psychological motivation as you see quick progress.
• Debt Avalanche Method: Pay off the debt with the highest interest rate first to save money on interest over time.

The best strategy depends on your personal situation, but the key is to have a plan in place.

4. Build an Emergency Fund

If you don’t already have at least three to six months’ worth of expenses saved, now is the time to start. Life after divorce can come with unexpected expenses, from legal fees to home repairs or medical bills. Even if you’re juggling debt repayment, setting aside even a small amount each month into a high-yield savings account can provide financial security and peace of mind.

5. Reassess Housing and Lifestyle Choices

Many people keep the marital home out of sentimentality, but it’s important to evaluate if it makes financial sense. Can you comfortably afford the mortgage, taxes, and maintenance on one income? If not, downsizing may be the smartest move.

Additionally, consider whether a more frugal lifestyle is necessary—even temporarily. For some, this might mean getting a roommate or rethinking major purchases. Remember, it’s about positioning yourself for a stable financial future.

6. Protect Your Credit Score

Divorce can take a toll on credit, especially if joint debts were mismanaged. If your credit score has dropped, focus on rebuilding it by:

• Making payments on time
• Keeping credit utilization low (ideally under 30% of your total limit)
• Checking your credit report regularly for errors (you can get a free report annually at annualcreditreport.com)

7. Consider Refinancing Your Mortgage

If your ex is still on the mortgage but you kept the house, refinancing might be necessary to remove their name. However, if you’re benefiting from an historically low interest rate, it may be worth discussing an alternative arrangement with your ex—just ensure you have legal protections in place.

8. Be Strategic About Major Financial Decisions

Whether you’re considering taking out a home equity line of credit, buying a new home, or investing in a business, proceed with caution. Make sure you understand how each decision fits into your long-term financial strategy. If you’re unsure, consulting a Certified Financial Planner (CFP) can provide clarity.

9. Rethink Your Debt Philosophy

Not all debt is bad, but it needs to be used wisely. Good debt (like a manageable mortgage or a business loan with strong earning potential) can be beneficial. Bad debt (like high-interest credit cards or financing vacations) can quickly spiral out of control. Being honest about why you’re borrowing is key to avoiding future financial stress.

10. Seek Professional Financial Advice

If managing your finances alone feels overwhelming, don’t hesitate to seek help. A financial planner can provide tailored advice, help you create a budget, and guide you toward smart investments for your future.

Embrace the Fresh Start

While divorce can feel like a financial setback, it’s also an opportunity to reset and build a stronger financial foundation. By budgeting wisely, managing debt effectively, and making intentional choices, you can set yourself up for financial success and independence.

Certified Financial Planner Michael Tarascio answers your questions:

1. Should I prioritize paying off debt or saving for an emergency fund? It depends on your situation. If you have no emergency savings, start by setting aside a small cushion while making minimum debt payments. If you already have some savings, focus more on paying off high-interest debt.
2. Is it a good idea to use a home equity line of credit (HELOC) to pay off debt? It can be, but only if you have a solid plan to stop accumulating new debt. A HELOC typically has a lower interest rate than credit cards, but it uses your home as collateral, so defaulting could put your home at risk.
3. How do I handle shared debts with my ex? If possible, separate all shared debts during the divorce process. If your ex’s name is still on a loan, their financial choices could still impact your credit.
4. How can I improve my credit score after divorce? Make on-time payments, keep credit balances low, and avoid applying for multiple new accounts at once. Also, monitor your credit report for errors.
5. What’s the best way to budget if I’ve never done it before? Start simple: track your income and expenses for a month. Use budgeting apps or spreadsheets to categorize spending, and look for areas to cut back. Set realistic goals and stick to them.