To Her Credit offers targeted advice about personal finance based on unique challenges faced by women. It is authored by women with different financial backgrounds, dedicated to encouraging empowerment through financial literacy.
Divorce is an emotionally charged event – and an expensive one. According to Nolo, the average cost of divorce in the U.S. is $12,900, including $11,300 in attorneys’ fees and about $1,600 in expenses such as court costs and fees for child custody evaluators, tax advisors, real estate appraisers and other experts.
Women are often hit harder financially by divorce. There are different factors contributing to this, but they lead to the same results: Women struggle to afford a divorce and get back on their feet when it’s over.
If you’re going through this challenging period in your life, we’d like to help you figure out your financial path. Here’s how you can prepare for a divorce, pay for it and recover once you’re a new divorcee.
How divorce impacts women’s finances
Jen Lawrence, trained divorce, transition and recovery coach at Designed Divorce, is a certified divorce financial analyst and former banker who helps her clients deal with money issues in divorce.
Jen shared some interesting statistics with us, comparing the impact of divorce and unemployment on household income; according to the United States Government Accountability Office’s Special Report to the Senate, women’s household income fell by an average of 41% with divorce, almost twice the size of the decline that men experienced.By comparison, overall household income dipped only 9% due to unemployment.
There are a few reasons for this discrepancy in income after divorce. Women still earn less than men – 79 cents per dollar, on average, and it’s less for women of color than white women. Furthermore, women are more likely to leave the workforce for a period of time to care for children or parents, and the gap in their resume often results in a lower household income.
When dividing assets, the assets women get to keep after divorce also might not yield the best return in the long run.
“Women often select assets requiring maintenance such as the family home to provide stability for their children,” Jen adds. “Men often select appreciating, low-maintenance assets such as retirement savings and pension funds that can put them in a better position financially.”
Divorce costs can become a financial burden, and it can get even more expensive in the process. For example, Jen notes that women are responsible for half of their husband’s debts in divorce – and it often happens that these debts come as a surprise. Additionally, women sometimes leave money on the table in settlement discussions in order to keep the peace, especially when leaving a violent household.
Another contributing factor to the weight of divorce on women is that when parents get divorced, women often become the primary caregivers. According to a U.S. Census Bureau report from 2013, only one of every six custodial parents (17.5%) were fathers.
“Even though fathers are supposed to regularly pay alimony, the main financial burden stays on mothers’ shoulders,” says Ana-Maria Sanders, financial analyst at OpenCashAdvance.com. “But regardless of the fact that raising kids is an expensive pleasure, most women consider custody of children as a privilege which undoubtedly worth all difficulties.”
See related: The true costs of child care and how to manage them
The difficulties include the fact that while mothers are supposed to get alimony or child support, many don’t. According to data from U.S. Census Bureau, less than half (45.6%) of custodial parents who were due child support in 2013 received full payments. Considering child support income accounted for over two-thirds (70.3%) of the annual personal income for parents below poverty who received full child support, loss of this income can be a significant financial blow.
That’s why it’s crucial for women to financially prepare for a divorce, as well as figure out their budget once it’s finalized.
How to financially prepare for a divorce
When you’ve made the decision to file for divorce, it’s time to gather as much information as you can and figure out the plan.
Here’s what you can do to protect your financial future.
Take financial inventory
If you’re planning to leave your marriage, take some time to get organized and educated.
“Take photos of pay stubs, bills, credit card statements, bank statements, mortgage statements, investment statements and income tax forms,” Jen Lawrence suggests. “If you have access to your safe or safety deposit box, go have a look at what’s inside. The more information you can give your lawyer and financial planners, the better.”
If your husband has initiated the divorce and hidden important financial documents, take some time to write down all bills, debts and assets you can think of. You don’t have to worry about the exact amounts since your attorney will be able to request financial disclosure, but having a general picture will help you start planning.
Separate your accounts
Any joint credit cards and loans in both names are both spouses’ responsibility. To avoid a situation where your spouse runs a large balance on a joint credit card and refuses to pay, dragging your credit down, take your name off all joint credit card accounts.
“Any loans in both names will be joint and split 50/50 in a community property state,” financial coach Linda Lingo warns. “If your ex… doesn’t help pay for these monthly loan payments while you go through the divorce, you will be responsible for making the payments, if you don’t want your credit history and credit score ruined.”
Make sure to have at least one credit card in your name only to start establishing your financial independence. Next, Linda suggests, get separate checking and savings accounts and save enough money for a couple of months worth of living expenses.
Plan your next steps
There are countless things you should consider in your financial planning, such as whether you’ll be able to stay at the family home, and if not, where you’re going to go and how you’re going to pay for it. If you’re currently not working, it might be the time to start looking for a job. Finally, if you have children, assessing your options becomes even more important.
That said, having a plan can sometimes be a luxury.
“I ran from an abusive husband and know it’s not always possible to have the perfect plan,” Linda shares, “but at least be aware of what you have and where you can go. Of course, your safety and that of your children is of primary importance. Being the survivor of an abusive relationship, it’s not easy to open a separate account, so stash cash away. Have your overnight bag always packed and ready to make a mad dash. There are local shelters that take in women and families who are running from abusive relationships. They are a godsend.”
Figure out how to pay legal fees
When it comes to divorce, a lawyer is your best ally. If you’re worried you can’t afford one or your spouse has cut you off from funds, there are a few things you can do.
- Ask about a payment plan. Many lawyers offer payment plans, and some don’t even charge interest or any extra fees. You might have to pay the initial retainer first, after which you would proceed to pay in monthly installments.
- Apply for a personal loan. If you have good credit, you might want to consider taking out a low-interest personal loan to cover legal costs. Make sure you can evaluate ahead of time how much money you’re going to need to borrow the right amount.
- Ask family or friends to help. It may be frustrating to have to do this, but those dear to you might be able to help you in this difficult time if you let them know about your situation.
- Look for pro bono services. American Bar Association states that lawyers should aspire to render at least 50 hours of pro bono legal services per year to help those in need. You won’t know if an attorney is willing to provide them unless you call and ask. If they say no, move on to the next attorney.
- Contact your family court. If all else fails, reach out to your family court to be referred to low-cost civil legal services agencies and other resources in your area.
How to get back on your feet after a divorce
Once you’ve left the divorce behind, it’s time to heal emotionally and recover financially.
The first step is to start figuring out your budget. As you’re adjusting to living on your own and paying off debt that you’ve accrued as a result of your divorce, you might have to scale back on some expenses.
“Even though a shopping spree or vacation may seem tempting, now is the time to save until you know what your expenses look like going forward,” Jen Lawrence says. “Work with a financial planner or use a program like Mint to track your income and expenses.”
As you’re paying off debt, make sure to keep an eye on your credit. In 2017, more women than men reported that their credit took a hit after divorce. If yours has too, work on rebuilding it, as your credit score is one of the most important numbers in your financial life.
To pay off your debts faster, it might be a good idea to look into a side-hustle. Maybe you could freelance or tutor or find another way to monetize a hobby.
Avoid neglecting other financial goals as you’re gaining financial independence. According to a study from Worthy from 2018, 44.4% of women in various stages of divorce were focused on paying off debt, and 72% did not choose saving for retirement as their main concern. That’s a concerning dynamic: With life expectancy for women at 81.2 years, planning for the future is crucial.
“Don’t put off saving for retirement,” Linda Lingo advises. “I know it’s hard to think about this when you’re emotionally trying to just get through the day. Put retirement savings on automatic, whether you can participate in your company’s 401(k) or save in your own IRA.”
Gaining financial independence may be a tough process, especially if your former spouse was taking care of all money matters. However, with a plan in place and certain frugality, you’ll reach the place where you’ll enjoy your financial freedom and grow your net worth.
See related: Gaining financial independence later in life
Divorce is a traumatic life event that can have a paramount impact on a woman’s mental and financial health. Creating stability in this period of life may be a challenging task, but with enough planning and a strategic approach, it’s doable.
No matter the obstacles, you’ll find a way to deal with it, and when it’s all behind you, you’ll thrive anew.
“Budget accordingly and live simply, knowing you can live the life you desire,” Linda says. “You are free and independent! Set your goals, develop steps to achieve them and go for it!”