Starting Over After Divorce: A Boomer & Echo Financial Makeover

Jackie Caine (42), a newly single mother of two pre-teen children, is struggling to cut costs and pay her bills after the collapse of her 18-year marriage.

She had always managed the bills, mortgage payments and shopping previously, but did so without actually giving money much thought. Their combined income was always enough, and payments for RRSP and RESP contributions, mortgage, property taxes, and insurance were automatically deducted from their accounts.

Related: A recent widow finds it difficult to move on

Her main goal was to keep the family home and buy back her ex-husband’s share of the equity.

“I want the kids to have the stability of living in the same house and the same neighbourhood with all their friends.”

She shared her ex-husband’s credit cards so had no credit history of her own. It was even a challenge to switch her utilities to her own name. She got a break when a local retail chain had a credit card promotion and she was approved for a card with a $500 limit.

Assets:   Liabilities:  
Residence $380,000 Mortgage $145,000
RRSP $50,000 Credit cards $12,000
RESP $4,500 Line of credit $6,800
Savings $1,200
Auto $38,000

Starting over after divorce

Here’s what she can do.

  1. Gather information: Jackie had provided her divorce lawyer with a multi-page document detailing assets and costs for everything from school supplies to property taxes. While it took quite a bit of time to collect all that information, the picture slowly came into focus. Once she determines her cash inflow – salary, child support, government payments and benefits she may have been ineligible for when household income was higher – she can start making effective decisions to cut out all unnecessary expenses.
  1. Don’t avoid the bank: Jackie should check with her bank to review her financial situation. They may determine she has enough income from her marketing job to refinance the mortgage, along with her debts, and pay out half of the house equity to her ex. At the very least she should see if she could reduce her mortgage payments until she gets back on her feet. This is very possible since they had been paying rapid bi-weekly payments for the length of the mortgage, and had added a few lump sums.
  1. Sell her vehicle: Jackie doesn’t need a large SUV. She could buy a used mid-size sedan instead. This would also save on other car related costs such as fuel, maintenance and insurance.
  1. Forge her own credit identity: Any financial obligations that still connect her to her ex-spouse should be cancelled, including joint bank accounts and credit cards. By using her new credit card regularly for small purchases, and paying off the balance each month, she should be able to re-establish her own credit rating within six months. She also need to change the beneficiary on her will, insurance and RRSPs.
  1. Emergency buffer: Jackie should try to put aside some cash each month for unexpected expenses such as her car breaking down or to replace her hot water tank. She could also use her freed up line of credit for this purpose instead.

Final thoughts

Everyone’s poorer after a divorce – the same income now has to be split two ways.

Related: Unexpected costs threaten to ruin this financial plan

Expectations may need to be adjusted – upgrade education and skills, find a new job, move to a less expensive home, or find a boarder. Starting over after divorce presents challenges, but it’s possible to come back financially and move forward.

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  1. Kurt on November 6, 2015 at 8:11 am

    Just like a new home buyer that wants to buy a nice home they can’t afford, there’s no reason she should put herself in financial risk to try and buy out the house. That’s just foolish and emotional. Sell it or take the buyout and find something you can afford. The kids won’t care, you’ve already screwed them up with the divorce. It’s not getting any worse for them at this point.

    • Cheryl on November 8, 2015 at 11:46 am

      Kurt…I agree with you on many points….but one of the things I really enjoy about this blog is that the commenters are gracious and polite with their comments. Undoubtedly this recent divorcee is going to see these comments at some point. Why make this more painful for her than it probably already is. Saying you’ve screwed up your kids isn’t kind or necessary.

  2. Carmen on November 6, 2015 at 9:22 am

    The stated priorities of keeping the family home and buying the ex’s equity seem to me, to highlight an absence of considered mental health,legal and financial advice. The article does not indicate the custody arrangement regarding the children and financial, tax benefit claims and agreements based on custody. most children, inmy experience, suffer some form of mental health issues following a parental separation. Monies set aside to deal with therapy may be considered a priority rather than arising as an afterthought. Expectations will surely need to be adjusted IMHO. As well, on a practical note, Most divorce lawyers require the payments to be up-to-date, so skip the lunches out and feed the lawyer’s meter. It is no fun to arrive at mediation or court dates alone and unprepared as the lawyer has asked to be removed from the record as his/her retainer has not been paid.

    • Robert on November 6, 2015 at 1:39 pm

      I agree with the gist of your comments, Carmen. Although I went through divorce at a bit younger than this example, the many issues I faced far outweighed my assets. By the time the dust settled Jackie’s situation as described is stellar to where I was at.

      One comment.on the article.
      Not everyone is poorer after divorce per the article. About 50% of people should be richer. The 50% that are the big spenders in the relationship are the ones that feel the hit.

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