It's hard enough to deal with a divorce on an emotional level. For many divorced women though, their new financial reality can be even more intimidating. Having to take control of family finances and trying to get by on less income can be overwhelming.
According to personal-finance expert Trisha Wagner: "Women are far more likely to suffer financially than men after a marriage comes to an end. Twenty-seven percent of women versus 10 percent of men will experience a significant decrease in their standard of living. For women who decided to stay at home to raise their children while counting on their husband's income to provide financial security, establishing financial solvency can be particularly challenging."
In many cases, so much energy is exerted on trying to limit the effect of divorce on children that many women put the financial aspects on the back burner. By the time they finally get around to dealing with their finances, many feel like they've dug a hole they can't get out of.
The first thing a divorcee needs to do is get her hands around the budget. This is the first step toward financial empowerment. Many clients have told me that by doing this relatively simple exercise, they feel that they have gained a level of financial control they never assumed they would have.
Whether you kept a budget while married isn't relevant. You are going to have a whole new set of expenses and will probably have different sources and levels of income than you had previously. Break your expenses down to those that are monthly and those that are annual, one-time expenses. Once you have that organized, write down all of your various sources of income, salary, child support, National Insurance Institute (Bituach Leumi) payments, etc.
What's important in budgeting is to let your income drive your expenses. This means that once you know how much money enters your bank account each month, create a budget that limits your spending to the amount of income you have. While this seems basic, most individuals let their expenses drive the process, meaning that they spend money without discipline and hope that at the end of the month they don't go into overdraft.
Understanding your budget can also play a major part in the asset division during your divorce proceedings. A well-known family law expert recently told me that much aggravation and time would be saved if women knew how much money they needed to live off of. With this information, women can avoid spending years and thousands of dollars fighting for every last penny. If you know how much you need to live, you'll know how much money to ask for.
Invest lump sums
As part of a divorce settlement, many women come into large lump sums of money and have no idea of what to do with it. It's important that this money is used to help meet any financial goals that you may have. If after doing your budget you see that you will need more income to make ends meet, then you will want to make sure that your money is invested in a way that can maximize the amount of income produced, while preserving or even growing your portfolio.
For many, this new situation is actually therapeutic. According to family mediator Kathleen O'Connell Corcoran: "After divorce, women experience less stress and better adjustment in general than do men. The reasons for this are: (1) women are more likely to notice marital problems and to feel relief when such problems end; (2) women are more likely than men to rely on social support systems and help from others; and (3) women are more likely to experience an increase in self-esteem when they divorce and add new roles to their lives."
Use this newfound independence and take control of your new financial reality. Speak with a financial advisor and create a plan that will enable you to get on with your life and be financially independent.
Aaron Katsman is a licensed financial adviser in the United States and Israel and helps people who open investment accounts in the US.
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