Budgeting After Divorce

By Katy McDonald, CFP® | Jul 09, 2024 |

Life after divorce can sometimes feel like a twilight zone. There’s a new lifestyle, rules, and financial realities to manage. Budgeting after divorce, whether you are a newly minted single person or already well into your next stage, means building a plan that is as resilient as you are.  

Step 1: Assess your current financial state

Take a comprehensive look at finances. Gather relevant financial documents, including bank statements, bills, and divorce settlement paperwork. Pay special attention to any alimony or child support agreements, as these will be crucial to your post-divorce financial plan. Ensure you clearly understand your income, debts, and expenses to provide a solid foundation for your new budget—including the categorization of fixed (mortgage, rent, utilities) and variable (entertainment, dining out) expenses. 

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Step 2: Establish clear financial goals

Divorce is a significant life event that may require reevaluating your financial objectives. Do you want to prioritize paying off debt, saving for your children’s education, taking that big solo trip you’ve always dreamed of, or investing in retirement? Tailor your budget to serve these objectives, giving your money a purpose and a plan.  

We had a client who recently went through a divorce after 20+ years of marriage. Now single and a soon-to-be empty nester, the client was unsure what they wanted their life to look like. We sat down to brainstorm the areas they wanted to prioritize, such as college tuition for their kids and travel — while ensuring they allocated the appropriate amount needed for retirement goals.   

We worked with this client to capture their short-term (within one year), mid-term (one to five years), and long-term (five years and beyond) financial goals. Downsizing was their short-term goal; paying for all four years of their kids’ college tuition was their mid-term goal; and retiring by 50 to spend years traveling solo and with their kids was their long-term goal. They went through and budgeted the amount needed for each goal and outlined what they would want their spending goal to be in retirement. We worked through several scenarios to outline what would be required for each.  

Step 3: Build a post-divorce budget

Budgeting after divorce should reflect your new, individual financial reality. Consider the expenses that were once shared and how those will now be your sole responsibility.  

Be realistic about what you can afford and ensure your long-term financial health. One goal the previously mentioned client had was setting enough aside for their children if they wanted to go to grad school or, if they decided not to continue their education, gifting them the amount instead. After going through the impact on a post-work life, the client realized that an earlier retirement full of travel with their children aligned more with their values and goals than safe-harboring funds for potential graduate school tuition.   

Step 4: Save for a rainy day

Life is unpredictable, and having a financial cushion can provide peace of mind and security for the future. The key is consistency with your savings efforts, allowing your fund to grow over time.  

Review your budget and look for opportunities to increase your savings. Perhaps you’ve paid off a loan, lowered a monthly bill, or found a more cost-effective service provider. Allocate these ‘found’ funds to your emergency fund for an added financial buffer.  

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Step 5: Monitor your budget regularly

Budgeting after divorce is not a one-time creation. Regularly review and adjust it. The post-divorce period is a time of transition, and your budget will need to evolve with your changing circumstances. Perhaps you secure a new job, your living situation changes, or your children require additional financial support. Monitor your budget to ensure it continues to serve you and your financial goals effectively.  

The previously mentioned client planned around higher expenses in the upcoming five years to account for his kids’ tuition expenses and reframed what his budget would need to look like to support that goal. He went through the process to see where he could cut costs and then utilize these dollars to save on tuition. Some things he did were canceling subscriptions for services he no longer utilized, changing his gym membership from the all-inclusive club to a bare-bones gym that still fit his needs, and deciding to go from eating out 3-4 nights a week to 1-2. 

Financial advice for life after divorce

Consider seeking expert financial advice. A financial advisor can offer insights into investment opportunities, tax implications of your new marital status, and planning for retirement. Their professional guidance can be invaluable as you adjust to your new financial reality. 

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