Budgeting for Divorce
For many people, the idea of budgeting--for anything--is unpleasant. Budgeting involves putting pencil to paper, or fingers to keyboard, and taking a hard look at finances in black and white. That hard look can reveal realities that are difficult to accept. If you're thinking about divorce, however, preparing a budget is one of the most important things you can do. It may feel uncomfortable, but the payoff will be worth it. Budgeting helps you know what you need to fight for, and what a fight could cost you.
The first thing you need to do is understand your sources of income. Include income from work, regular distributions from a trust or other source, and any spousal maintenance or child support that you are currently receiving. Just as you shouldn't count chickens before they're hatched, you shouldn't count on spousal maintenance you think or hope you'll get. Most people have relatively few sources of income, so this is the easy part of the process. Add up all of your income after taxes and other deductions.
You may draw income from only a few places, but you spend it in dozens. This is the challenging part of making a realistic budget. If you don't identify where your money goes, your budget isn't worth the paper it's printed on. Start by identifying regular or "fixed" expenses, like mortgage or rent, car payments, utilities, and so on. Utilities are a regular expense, but tend to vary over the course of the year, so try to download your last year's worth of statements and average the cost over 12 months. Do the same with payments you make quarterly, such as premiums on certain insurance policies.
If you have the luxury of time, carry a notepad with you and enter every single expenditure you make during the month, from the grocery bill to the purchase of a cupcake at the school bake sale. You will be astonished at how the smaller purchases add up. Lump these expenditures into categories: entertainment, gifts, dining out, kids' extracurriculars, etc.
Remember to include things like all types of insurance premiums, contributions to retirement plans, homeowners' association dues, rentals of storage lockers, timeshare expenses, charitable donations, any spousal maintenance or child support you currently pay, and yes, attorney fees.
Make a List, Check it Twice
List all expenses by category, being careful not to leave anything out or double-dip (if you pay for groceries using your credit card, don't list the expense under both "groceries" and "credit card payment.") Don't list an amount for an existing expense that's smaller than reality because you think it should be, or larger because you want to pad your budget. Be as accurate as possible.
Now, go back through that list of expenses, this time with an eye to what you can reasonably cut. You probably can't slash your car payment. But you may not need the top-of-the-line cable package or the gym membership. (You were looking for an excuse not to go anyway.)
Subtract both expense totals from your total income. Ideally, your income covers all expenses without any cuts in spending, but for many people that's not the case. If even your pared-back expense total is higher than your income, you may need to make deeper cuts. Remember that these budget cuts need not be forever--just until you get on your feet financially.
Two Heads are Better than One
Look over your budget with your attorney to make sure it's realistic. Make copies of materials like paycheck stubs, bank statements, utility bills and income tax returns for your attorney. When she is negotiating or arguing on your behalf, these documents are evidence that support the reasonableness of your position regarding things like spousal maintenance and child support.
As helpful as this information is to your attorney in preparing your case, it's even more empowering for you. At a time when so many things seem out of control, understanding your needs and your resources puts some critical control back into your hands.
Please feel free to contact us at Mundahl Law with any questions you have regarding budgeting for divorce and for life beyond. We look forward to hearing from you.