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.
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.
|RESP||$4,500||Line of credit||$6,800|
Starting over after divorce
Here’s what she can do.
- 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.
- 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.
- 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.
- 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.
- 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.
Everyone’s poorer after a divorce – the same income now has to be split two ways.
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.