7 common ways a divorce can change your personal finances

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Divorce can disrupt nearly everything in life, but many couples underestimate just how much it will reshape their finances. 

"There are three aspects of your divorce that you need to deal with: emotional, legal and financial," says Amy Colton, a Texas-based Certified Divorce Financial Analyst® and founder of Your Divorce Made Simple. "And for some reason, the financial piece seems to be the one that's neglected the most."

CNBC Select spoke with four financial experts about what soon-to-be divorcees should know and how they can make uncoupling as cost-effective as possible. 

• Your monthly budget
• Your credit score
• Your retirement portfolio
• Your taxes
• Your housing
• Your insurance coverage
• Your court costs
• Bottom line

From the moment you and your spouse say "I do," everything the two of you earn is considered part of a marital estate, unless those earnings are protected by a prenuptial agreement or held in a trust, says Victoria Kirilloff, a California-based Certified Divorce Financial Analyst® and founder of Divorce Analytics. 

So, if you don't have a prenup, everything is on the table when you or your spouse initiate a divorce. That's why the first financial step of any divorce is creating a balance sheet, or a list of all your assets, says Chad Willardson, a California-based Certified Financial Fiduciary® and the founder of Pacific Capital. 

CNBC Select recommends meeting with a financial advisor during or after your divorce to get your feet back on the ground, because your divorce could affect each of the following: 

In a typical divorce, half of your income streams will disappear since a two-income household will become a one-income household. So, if you weren't earning any money when you were married, and you were dependent on your spouse's income, then you could be stepping into a zero-income household, unless you have certain circumstances that may entitle you to receive a portion of your spouse's income after the divorce.

Willardson pointed to a statistic from the Government Accountability Office which reports that, after a divorce, a woman's household income drops by an average of 41%, almost twice the income drop experienced by men. The division of your marital assets will likely thrust your personal finances into a new era, and you'll likely need to adjust your budget accordingly.

"Alimony and spousal maintenance are going the way of the dinosaur," says Nancy Hetrick, an Arizona-based Certified Divorce Financial Analyst® and the founder of Smarter Divorce Solutions. "The vast majority of states now only award alimony on a rehabilitative basis."

In other words, if you're of working age, most states now expect you to reenter the workforce after a divorce if you've been a stay-at-home spouse, says Hetrick. Still, a few states like California are still very pro-spousal support, says Colton. 

While you're much less likely to pay or to receive spousal support than you were twenty years ago, child support is still a widely expected cost of divorce. Child support payments vary widely from state to state, but according to Custody X Change, the average child support payment in America is more than $700/month.

To put it simply, regardless of your financial position during a marriage, you'll likely have less money coming into your household after a divorce, and you may not be able to afford all the things you used to when you were married. A budgeting app can help you understand the new lay of your financial landscape — some of our favorites include Mint and You Need a Budget.

Your relationship status doesn't directly affect your credit score, but a divorce can affect many of your financial habits and thus indirectly lower your credit score. 

For instance, it's easy to forget to make payments on joint debt – like on a shared credit card, car loan or mortgage –  throughout the divorce. Even after a marital settlement, your ex-spouse might be held responsible for making certain payments. But if your name is still attached to those accounts, your credit score will drop if they miss a payment. 

It's also common to be an authorized user on a spouse's card. If your spouse removes you as an authorized user, your credit utilization ratio ( the percentage of the total credit available to you that you're using) will rise as your overall credit limit decreases. That's bad, since a high credit utilization ratio can deal a significant blow to your credit score.

It's smart to monitor your credit score regardless of your relationship status, but it's especially important during and soon after a divorce. You should consider using a free service like Experian to monitor your credit score automatically and to view your credit report, which will show you what loans and credit cards are under your name. 

To limit your divorce's impact on your credit score, consider freezing your credit. This way, new credit can't be approved under your name while you go through your divorce, preventing a spiteful ex-spouse from taking out "revenge debt" in your name. You should also close joint accounts, though be aware this will affect your credit utilization ratio and subsequently your credit score. 

Hetrick recommends having a credit card in your name long before a potential divorce. Not only will this help you establish a source of credit solely in your name, it also guards against the possibility that your spouse could cut you off financially at the onset of the divorce. 

Generally speaking, retirement savings accrued during a marriage are part of the marital estate and subject to division, says Hetrick. Depending upon which state you live in, your retirement accounts can be considered community property or equitable distribution unless there is a valid pre-nup in place.

In community property states, any retirement savings are considered joint earnings and are divided equally. In equitable distribution states, the state's courts will divide retirement savings equitably but not necessarily equally.

If you were married to your ex-spouse for more than 10 years, you can access up to 50% of your spouse's Social Security benefit (and vice versa) as long as you are still divorced and of retirement age. Accessing this benefit doesn't reduce your ex-spouse's Social Security payout; they will still receive all of their Social Security benefits, and the government will cover the difference, says Kirilloff. 

For older divorcees, retirement account division is perhaps the most consequential financial implication of the divorce. You'll likely have to reassess your retirement plans to make sure your savings are on track.

One of the most cost-effective ways to keep track of your retirement savings is by using a robo-advisor like Betterment or Wealthfront, which can create a custom portfolio for you based on your risk tolerance, time horizon and financial goals, and then automatically adjust your investments down the road.

Changing how you file your regular income taxes – single or jointly, with or without dependents, depending on custody arrangement –  significantly changes your tax payment, Willardson says. 

"When you're married, you get a great deduction. I mean that you pay pennies, it seems like, on the dollar compared to having a single-filer status," Kirilloff says.

In 2013, The Atlantic reported that a single woman could pay anywhere between about $500,000 and $1 million more in her lifetime on taxes than her married counterpart. Married couples in 2020 were only taxed 10% on their first $19,750 of taxable income; those who filed separately only received this 10% rate on taxable income up to $9,875.

If you don't already consult with a tax professional, you definitely should look one up during the divorce so you can understand the implications of your new filing status.

When going through a divorce, it's common that either you or your spouse will have to finance new housing arrangements after the divorce, and living alone can be expensive. You'll likely now be shopping for a house with just one salary instead of two. 

If you're on a tight budget after a divorce, CNBC Select recommends using a mortgage lender with a low minimum down payment and flexible loan options, like PNC Bank, which offers USDA loans in addition to other standard mortgage options.

House shuffling can have major tax implications as well. Colton points out that you can sell your primary residence exempt from capital gains tax on the first $500,000 of equity if you are married and filing jointly. However, if you get divorced and subsequently file as single, only the first $250,000 are exempt from capital gains tax. For example, consider a home that has $500,000 in equity, and you or your ex-spouse decide to sell it after a divorce.

"That probably means a $40,000 tax bill," Colton says. So, you might be better off selling your house before your divorce is finalized to take advantage of a hefty tax exemption.

You'll likely have to update many of your insurance plans after a divorce, especially if you primarily received coverage from a spouse's plan. 

The moment that your divorce is decreed, you are no longer eligible to use your spouse's health insurance, Kirilloff says. So, you'll need to get your own policy, which can be expensive. 

Willardson also recommends purchasing a life insurance policy on the payer of alimony or child support, especially if you have young children, to ensure financial stability in case something happens to an ex-spouse that you are financially dependent upon. 

One of CNBC Select's favorite life insurance companies is Northwestern Mutual. According to the National Association of Insurance Commissioners (NAIC), it is the largest issuer of life insurance policies in the U.S., and the company offers a wide variety of life insurance products to best fit your circumstances. State Farm is another provider that customers rate highly and also offers life insurance policies that don't require a medical exam.

Divorces that make it to a courtroom are extraordinarily expensive, says Kirilloff. If a courtroom divorce is unavoidable, get ready to deal with hefty fees. Divorcees who hire a full-scope divorce lawyer pay an average of $11,300 in attorneys' fees, according to a national survey by legal help service Nolo. 

"I see those couples in court all the time, and if they don't get to the point where they get cooperative, then it's $100,000, $200,000, half a million dollars that just never comes back," says Hetrick. "They spent $200,000 fighting over assets that were worth $50,000." 

One way to avoid the courtroom and save potentially tens of thousands of dollars in legal fees is to use a neutral, third-party service with certified financial advisors. Keep in mind that your lawyer is not your financial professional and can't give you financial advice. However, these analysts can help you and your spouse iron out an asset division plan outside of court. By doing this, you only need to pay an attorney to draft or certify the separation contract (in most states) instead of each party paying an attorney to barter over your joint financial assets for days or weeks on end. 

If you still end up with a bill that's a lot more than you bargained for, you might consider taking out a personal loan to cover those fees. One of CNBC Select's favorite personal loans is from LightStream, the online lending arm of Truist Bank. LightStream Personal Loans offer low-interest loans with flexible terms for people with good credit or higher, and they deliver funds quickly. You can also apply for up to $100,000, making it ideal for those who require larger funding amounts.

The most financially simple divorces are done amicably, with empathetic communication between both parties. But no matter how messy your separation gets, you should still prepare for some common financial pain points.

Amy Colton, a Certified Divorce Financial Analyst®, is the CEO and founder of Your Divorce Made Simple, a Texas-based financial solutions firm where she has guided individuals and couples through the division of assets since 2016.

Victoria Kirilloff, a Certified Divorce Financial Analyst®, is the founder of Divorce Analytics, a California-based financial solutions firm where she has helped her clients through data-driven divorce settlements since 2020.

Chad Willardson, a Certified Financial Fiduciary®, is the founder of Pacific Capital, a California-based wealth management firm where he has forensically guided wealthy clients through financial life stages like divorces since 2011.

Nancy Hetrick, a Certified Divorce Financial Analyst®, is the founder of Smarter Divorce Solutions, an Arizona-based financial solutions firm where she has helped individuals and couples through easy, profitable divorces since 2012.

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