Fiscal fitness -- here's what happened after the divorce

It's one thing to get financial advice from articles, but first-person experience is equally valuable. I asked frequent commenter and longtime friend Molly about the financial challenges she faced during and after her divorce. The Q&A is after the jump.

Q. Can you describe your financial situation from your first marriage?

It could be seen as very "live for today." My ex-husband stands to gain a very large inheritance. We were students through all but one year of our time together, so we often took out student loans to subsidize the income of graduate student salaries with the knowledge that the inheritance would come through in the future. (completely reckless and stupid, I know!)

Q. Did your financial situation exacerbate the pre-divorce situation?

Money had no influence in our divorce. At the time, we really had no money so it became a "division of debt" situation. I wanted out of the situation and if it meant poverty, so be it.

Q. So what sort of financial shape were you ended your marriage?

When the marriage ended, I was a graduate student in a rural town. I earned around $15k a year as a graduate teaching assistant. I discovered that my ex-husband added me as only an authorized user to his credit cards, so I had NO credit cards and NO credit history except for my student loans and I was 29 years old. He got the credit card company to issue me a credit card in my own name to transfer some of our shared credit card debt for me to take in the divorce. I did not want or ask for alimony.

I left with a list of maybe 25 things (futon, table, chairs, etc) per our separation agreement. He got most of the furniture and the car. I had a used bike and I found an apartment close to campus so I could walk to classes and office hours. The apartment was cheap since it had no air conditioning. Eventually, I had to get a used car because, sadly, in most of America, one must own a car.

Q. What were some of the biggest financial worries you had when divorcing?

Oh there were many financial worries! I really didn't have a safety net at all and I was basically starting over. My parents were unwilling/unable to help me financially at all. I found it was very difficult to rent an apartment with no credit history but it was a small town and the university was a major employer so the real estate company cut me some slack when they learned what was going on. There were many months where I had no money for food, and friends would take me out or stop by with some groceries. Also I would often pet-sit for my ex-husband for groceries when he traveled on vacation to visit his friends.

Q. What were the worst "surprises" that arose, moneywise, once you were on your own again?

I knew going into it that it was going to be very difficult and I would have a major lifestyle adjustment. Starting from scratch on a graduate student's salary caused a large amount of debt. I often had to rely on credit cards to cover basic expenses. I often went over the limit, which resulted in crippling fees. I went from having one credit card that my ex-husband got me with $200.00 of open credit to having 4 credit cards. At one point, I had about $25,000 in credit card debt.

Q. Conversely, were they any positive surprises?

I was stunned at how often serendipitous life could be. When things were looking very daunting without a car, I happened upon a great deal on a used car, and a friend spotted me a loan for two weeks to purchase it. Another time, my funding ended but I still needed another semester to finish my thesis. I landed a job --in my field-- in town. I ended up taking two semesters to finish but I was working and using what I had learned in graduate school. I stayed with the company another year after I graduated. I doubt I would have made it without that job with the small software company.

Q. What were some of the habits you had to undo?

The first two years were basic survival, trying to balance debt. I started to try to change my outlook from "short term financial thinking" to "long term financial thinking." This seems like it would be a very easy thing to do, but actually it is VERY difficult because it involves a lot of delayed gratification and NOBODY likes delayed gratification. This is also something my parents never taught me because they have issues with this as well.

I had to get out of credit card debt, not only the amount from my divorce but I acquired other debt from purchases to set up a new apartment (like flatware, drinking glasses, etc.) --basically starting over. I learned to carefully watch the limits and due dates for credit cards. The credit card industry is ruthless! They make it nearly impossible to get out of credit card debt. The only way I got out was I basically doubled my income (but not my spending) when I moved from Blacksburg to DC.

Q. What were some of the survival steps you undertook as a newly-single woman?

I went bare bones on the finances. When I had money for food, I bought only the cheapest food possible, usually very few fresh fruits or vegetables. I had to watch every penny. I was grateful to those who helped me by bringing food. I got a single space heater to use in the winter instead of my heat because it was so expensive. I typically wore two layers of clothing in my house during the winter at all times.

Q. What were the most drastic steps? Or the most irritating and depressing?

My food situation was pretty bad. Looking back, I really should have applied for food stamps. The single space heater made for a very cold winter. My apartment also did not have air conditioning. The moment I was most depressed was when I had some minor surgery during the summer and had to sleep on the broken down crappy futon, which I got for my "bed" in the divorce. I was so uncomfortable from the pain and it was pretty hot too; I actually cried myself to sleep.

Q. What kind of social pressures did you find yourself dealing with? Were your family and friends ultimately helpful, or did you have to alter some of the things you talked about or activities you did together?

Everyone was helpful emotionally. I am very lucky to have a close friend who is a clinical psychologist and had been through a divorce.

I didn't expect financial help from anyone, so I would have never really asked for help from anyone. The friend who brought me food was a saint! I did have a friend spot me a short loan to purchase my car, which I paid back. However, there aren't a lot of bank-breaking activities in Blacksburg, and most of my friends were cyclists, which was basically a free activity. The biggest expense was eating out -- that was significantly curtailed.

Q. Which good financial habits did you adopt? Were you at all relieved to be picking up these new habits?

Moving from "short term financial thinking" to "long term financial thinking" was a new habit I developed. In many ways, this reduces a lot of stress because you focus on how you will be out of debt in X amount of time.

I also started budgeting. I did a very simple 60-40 budget, which I think I read about on MSN Money. Basically, you live on 60% of your income and then save 40% (20% short term savings, 20% long term savings). Initially, most of the 40% went to debt servicing. I like this budget because it forces you to live within a certain amount. It was difficult being honest with myself as to my income and expenses. It's easy to not see the whole because it's just too overwhelming.

Q. How long did it take to get your financial feet under you?

It happened in phases. The first phase was the extreme poverty that most graduate students go through, which lasted about 16 months. The second phase was after graduate school, a debt servicing phase of about 2 years. This was not as austere as the first phase, and you can sort-of see a light at the end of the tunnel. The final phase was when I moved to DC, improved my income dramatically (but kept my expenses in check), and finally killed off the debt. This last phase lasted about 3 years.

[Edit note: In other words, it took Molly a little over six years to become financially independent and eliminate her debt.]

Q. What habits or mindsets did you keep once you were back in the "safety zone" financially, so to speak?

I still live below my means. I am not the clothes shopper I was before graduate school! I really think about purchases now. I started my IRA when I was working in Blacksburg. I continue to contribute to it even as a stay-at-home mother. My husband and I talk about long-term finances all the time, and his outlook on spending is very similar to mine.

Q. What money lessons from your first marriage did you carry into the money matters of your second?

When I remarried, I insisted on keeping all my credit cards and not having any joint credit cards. We are always allowed to look at each other's statements when asked. Some people would have issues with this arrangement but it works for us. I also wanted my own bank account since my ex-husband had some OCD-type issues with our joint checking account. He would often "ban" me from using the checkbook if I voided a check or if I mistakenly wrote a check out of sequence (duplicate checks stick together sometimes).

My (hotter, newer, younger) husband and I had individual accounts in which the other is a secondary account holder. In theory, it is a joint account but the secondary has limited access (no ATM card, limited access without primary's approval with bank). We also have a joint household account and a money market account. I pay most of our bills and keep track of the money in all the accounts (even his individual account). He is responsible for our estimated taxes (self-employed) and his credit cards.

Q. If you had to give financial advice to anyone who's facing the breakup of their marriage, what would it be?

Prepare yourself for a MAJOR lifestyle change. Assume worst case scenario:Iif you have no financial safety net, could you make it? Find the cheapest yet safe apartment you can, and if you don't like it just assume you will move later when your finances stabilize.

Be very careful about taking on debt!! Make NO purchases, besides food and essentials, for at least a couple of months so you aren't motivated to shop your way through the emotional trauma that comes with divorce. It is a very difficult thing to go through.

If you had limited control over your money in your marriage, start reading financial magazines, newspapers and blogs.

Maintain your friendships and some sort of social life. I got the first job in my industry through a casual acquaintance at a summer BBQ. You might feel sad and want to hide away but you might be missing out.

Remind yourself that your situation is temporary and that YOU are building a better future for YOU.

Comments

[Jessica]

Thanks for this post, Lisa and Molly.

One piece of advice I'll add, although it can be seen as a subpoint of becoming financially aware: keep a close eye on your credit report, especially after the divorce.

About five years after my divorce, I was turned down for a credit card. It turns out that my name was on a credit card belonging to my ex-husband, of which I was unaware. I hadn't known about the card when we split up, and apparently back then it had a zero balance. Five years later, he had put $10,000 on the card. I hadn't found out about it earlier because he was making regular payments (thank goodness) and I didn't take a close enough look at my credit report. However, when I tried to get a new line of credit, the additional $10,000 showed up under my name and disqualified me.

Also, my ex was in charge of paying bills because I was labeled the "Irresponsible One" in our marriage -- a result of making two late payments and bouncing one check while we were in college. After our divorce, I discovered that the only negative mark left on my credit (the college errors had "fallen off" due to time passing) was from him making a late payment on the only credit card that was solely in my name.

Bottom line: each partner should keep an eye on things, even if you agree that one of you is going to handle the day-to-day affairs.

[amanda]

It's amazing how much better off we can be having gone through a trauma -- a lot of good advice in here. Thanks.

[amanda]

I had to come back and post as last night I went and re-read that 60-40 article -- I think I read something like it some time back when I couldn't really implement it. I pulled up our little household budget spreadsheet -- took a fresh look at the numbers and applied the 60/40 and said, "Hey! This is why we aren't saving anything!" We've been having lots of talks lately now that our income is rising a little and our regular expenses are definitely settled into a predictable pattern and we're going to do take a little trip away for a weekend and pow-wow these topics. I think we'll reverse engineer, staring with the 40 and seeing what's left for the 60 (that whole "pay yourself first" concept). Anyway, thanks for the reminder of that article -- it's a great, simple way to tackle the big topic.