Handling Expenses While Divorcing
In the chaos that often accompanies the process of divorce, one aspect often takes the back burner - handling expenses while divorcing.
While the divorce process is truly an emotional and mental upheaval, it’s also very much financially driven. Successfully handling your finances while divorcing can spell the difference between a thriving future post-divorce or one mired in poverty and hardship.
In this article, we give you practical tips on how you can keep your finances under control by creating a budget. We also touch on its importance to your divorce and your future, and what you can do to keep within this budget.
Handling Expenses While Divorcing: The Importance of Creating a Budget
Divorce is expensive, and it can make you feel discouraged and terrified about your money situation. This is understandable. However, it’s not the time to be immobilized by fear.
Although things may seem insurmountable, now is actually the best time to take control of finances.
The first step in handling finances while divorcing is creating a budget. People often have a negative response to this task.
Many times, couples undergoing divorce don’t have the experience to prepare detailed budgets that can serve as support when determining settlements.
To top it all, you really need two budgets! It’s necessary to create a historical budget based on established incomes and expenses for when the divorce is ongoing, and also a post-divorce budget.
Why are budgets important?
Reason 1: A budget based on historical figures of family income and expenses shows the standard of living during the marriage. This budget becomes the basis for important matters such as post-divorce spousal and child support.
It can even determine how much temporary support is granted while divorce proceedings are ongoing. This can be a game changer, especially if the divorce is to drag on.
Reason 2: Normally, budgets are based on certain assumptions. However, a budget based on actual past figures can show specific special expenses, especially those for child care.
Reason 3: Sometimes, in less than amicable divorces, one spouse may attempt to hide real income from the court. For instance, your soon-to-be ex may underreport income from bonuses and other financial perks, or from investment earnings.
A comparison of actual budgetary expenses against declared income may reveal any inconsistency.
Reason 4: A post-divorce budget is necessary to plot out future expenses and income needs. This will allow you to file an accurate Financial Declaration with the court.
With a historical budget prepared, the task of creating a post-divorce budget is made easier.
The Financial Declaration is one of the most important documents filed in a divorce case. The court assesses the financial declarations of both parties and this becomes a big factor in determining spousal support and other financial obligations.
Changes in lifestyle during and after divorce are an inevitable part of the process. Preparing accurate budgets - historical, during divorce, and post-divorce, allows the divorcing couple a realistic view of their present financial situation, as well as, their future.
And this allows them to make well-informed and judicious decisions.
Handling Expenses While Divorcing: Historical Expenses
Gather documents. The first step in determining expenses (essentially the cost of your family’s lifestyle) is to gather documents that show how much you spent over a period of time.
Several years of records will give you a more accurate picture. However, you can create a budget with records dating to one year prior to your separation. Records you will need, include (but are not limited to):
Bank account registers or statements
Canceled checks
Paid bills
Credit card statements
Loan papers
Cash receipts
Organize your records. Once you’ve gathered your documents, categorize them by year, if you have several year's worth of records.
List down expenses according to categories. After organizing your records by year, break these down further by organizing by month. Finally, list down your monthly expenses according to categories. Here are the expense categories to guide you:
Housing Expenses - mortgage, rent, real estate taxes, insurance, home care. services, repairs, etc
Utilities - electricity, water, gas, cable, telephone, internet, etc.
Children’s Expenses - school tuition and school-related expenses, allowances, camps, recreation, daycare, babysitting, etc.
Financial Expenses - bank fees, safety deposit fees, spending cash, bank loans, student loans, auto loans, credit card payments, etc.
Transportation Expenses - gasoline expense, auto insurance, license renewal, vehicle maintenance and repair, toll fees, taxi, bus fare, etc.
Health Expenses - doctor’s fees, co-pays, dental care, eye care, annual physicals, prescriptions, health and life insurance, etc.
Household Expenses - groceries, cleaning supplies, office supplies, pet care, and other expenses, etc.
Gifts - gift expenses for holidays, birthdays, weddings, graduations, cards, gift wrapping, shipping, etc.
Personal Expenses - clothing, personal maintenance (haircuts, salon expenses), dining out expenses, club dues, movies and other entertainment expenses, hobbies, magazine subscriptions, charities, etc.
Below is a form (Form A) based on Financial Declaration/Affidavit. It lists down particular expenses per category and gives you a fairly accurate picture of your family’s spending.
To determine your historical average monthly spending, fill this up with at least 12 months of documents you have gathered.
Add the totals for the months you have records for then divide it by the number of months to come out with your average monthly family spending.
Fill in the numbers in the form below:
Form A (fill in with figures per month)
Total For Section | ||
Housing Expense Mortgage Home Insurance Property Taxes Repairs Rent Renters Insurance Lawn Care & Services | $__________ $__________ $__________ $__________ $__________ $__________ $__________ | |
Total Housing Expenses | $__________ (copy this number to the right) | $________ Housing |
Utilities Gas Electric Phone Cable Water Trash Sewer Internet Cell Phone Storage Fees | $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ | |
Total Utilities | $__________ (copy this number to the right) | $________ Utilities |
Children School Tuition School Lunches School Supplies Tutoring Team Fees School Photos Allowances Camps Recreation Sports Fees Babysitting Daycare Diapers Formula Child Support | $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ | |
Total Child Expense | $__________ (copy this number to the right) | $________ Children |
$__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ | ||
Total Financial Expenses | $__________ (copy this number to the right) | $________ Financial |
Transportation License Renewal Gasoline Auto Insurance Tires Maintenance/Oil Changes Tolls Taxi Bus Fare | $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ | |
Total Transportation | $__________ (copy this number to the right) | $_________ Trans. |
Health Doctor Dental Eye Care Annual Physical Prescriptions Glasses Health Insurance Life Insurance | $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ | |
Total Health Expenses | $__________ (copy this number to the right) | $__________ Health |
Household /Pets Groceries Cleaning Goods Office Supply Pet Care Pet Boarding Vaccinations Supplies | $__________ $__________ $__________ $__________ $__________ $__________ $__________ | |
Total House Expenses | $__________ (copy this number to the right) | $_______ Household |
Gifts Holidays Birthdays Weddings Graduations General Cards Christmas Cards Wrapping Supplies Shipping | $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ | |
Total Gift Expenses | $__________ (copy this number to the right) | $_________ Gifts |
Personal Eating Out Clothing Haircuts Nails Salon Charities Club Dues Entertainment Movies Hobbies Magazines Newspapers Dues/memberships Other | $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ | |
Total Monthly Expenses | ||
Housing Utilities Children Financial Transportation Health Household Gifts Personal Total Monthly Expenses | $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ (copy this number to the right) | $__________ |
Handling Expenses While Divorcing: Current Expenses
When handling expenses while your divorce is ongoing, it’s important to also track your daily expenses under the proper categories into daily or weekly worksheets. Use the same format above (Form A).
At the end of the month, add up all of your daily or weekly expenses to get a monthly total for each category.
Similar to what you did for the historical expenses, add all the month’s totals and divide by the number of months to arrive at your average monthly total for each expense category.
This accounting of current expenses becomes part of what is called your temporary budget. It is used to document your interim lifestyle. It reflects changes in housing, transportation, childcare expenses, etc as you move on with your life as a single person.
Handling Expenses While Divorcing: Post-Divorce Budget
The task of creating a historical and interim budget is daunting. However, you will realize the importance of the accuracy of these budgets once you sit down to create your post-divorce budget.
Historical budgets, if done accurately, can show unhealthy spending habits. Being able to identify areas where there may have been unnecessary expenses can help you and your spouse make changes in temporary and post-divorce budgets.
The temporary budget, along with the historical budget sets the groundwork for crafting your post-divorce budget. This in turn is used as a tool to evaluate settlement options and create a financial plan after the divorce.
In creating the post-divorce budget, you should use the same form (Form A). Taking into consideration several factors, the post-divorce budget should forecast spending that is sustainable after the terms of the divorce have been finalized.
Your total expenses should be covered by the total amount of income you’re expecting post-divorce.
Handling Expenses While Divorcing: What About Income?
Up to this point, we’ve been talking about expenses. However, a budget is essentially meaningless if expenses are not compared to income. The point of creating a budget is to spend within what your income affords.
Below is a form you can use to determine income.
Fill in numbers in the form below:
Monthly Gross Income | Total For Section | |
Salary and wages Bonuses and Fringe Benefits Child Support Alimony Social Security Retirement Income Disability Payments Unemployment Worker’s Comp AFDC Dividends Interest Income Business Income Rental Income Other income | $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ $__________ | |
Total Gross Income | $__________ (copy this number to the right) | $__________ |
Deductions From Income Taxes Health Ins. Other Deductions Savings 401K | $__________ $__________ $__________ $__________ $__________ | |
Total Deductions | $__________ (copy this number to the right) | $__________ |
Total Gross Income (minus) Total Deductions | $__________ -$__________ | |
Monthly Available Income | = $__________ (copy this number to the right) | $_________ |
Once you’ve determined the expected income, subtract your expenses from this figure.
Handling Expenses While Divorcing: Controlling Your Expenses
For many women, divorce negatively affects their standard of living because she has to support a household on only one income instead of two. Here is where budgeting becomes important.
Sticking to your budget is key. While you may think that straying from what you have allotted once in a while is okay, doing so can seriously derail your finances.
For the most part, you may not be able to increase your income. However, you can lower the amount of money that goes out of your pockets by controlling your expenses.
You may have to forego some things (hopefully just temporarily) you have been used to while you were married.
While some expense items may not seem much on their own, they do add up. You may find yourself saving several thousand dollars in a year by making just small changes in your lifestyle.
Among the things you can try:
Cancel subscription to premium movie channels or streaming services you don’t really use
Forego magazine or newspaper subscriptions. You can read everything online these days anyway.
Maximize your cell phone service by doing away with your home phone service
Make home-cooked meals instead of ordering out or eating out
Skip ordering overpriced specialty coffee.
Divorce can be financially debilitating. However, this need not be your fate. Handling your finances while divorcing will help you make your future more stable.
Handling Expenses While Divorcing? I Can Help
For many people, creating one budget can be truly challenging.
If you’re going through a divorce, you would need to prepare 3 budgets - a historical budget, an interim or temporary budget while divorce is ongoing and a post-divorce budget that will become the basis of your divorce settlement.
As a Certified Divorce Financial Analyst®, this is where I can lend you invaluable assistance. By giving you guidance on how to accurately prepare budgets, you can successfully plan your financial future after divorce.
Take Control of Your Future
Divorce is stressful. My job is to make the process easier and help both you and your attorney review your options so you understand the impact of your financial decisions and how they will affect your future.
Kimberly can provide step-by-step guidance on matters related to divorce. With a wide range of experience and expertise related to divorce issues, our team will simplify the process and provide much-needed clarity in areas such as long-term tax consequences, asset, and debt analysis, dividing pension plans, continued health care coverage, stock option elections, protecting support with life insurance, and much more.
This information is not intended to be a substitute for seeking legal advice from an attorney. For legal or tax advice please seek the services of a qualified attorney and/or qualified tax professional.