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Family Law

: Colorado Family Law Blog

Preparing for Divorce - Prepare a Budget (or two)

By Jennifer Rice, Esq.

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Here is the fourth post in a series about preparing for divorce. Divorce attorney Michael Sherman of the Alabama Family Law Blog has tips on divorce. I've added my comments in italics.

Preparing for Divorce: Step 4 - Prepare a budget (or two)

The next step in preparing for divorce is to make two budgets (one that shows the situation in the house before the divorce filing, and one that is your estimated budget for after the divorce).

Most folks don't like to prepare one monthly budget, so I know I'm asking a lot to suggest that it is helpful to prepare two of them. There is a method to the madness though. It is important to know what it costs to run your household currently. Equally important is to have an understanding of what your costs of living will be after the divorce. Let?s take each in turn. Do not forget that you are probably transitioning from a two adult household (with both incomes) to a one adult household (with possibly a lower income). Some things that you considered part of your life as a married couple may need to be cut back. The Court understands that it is not appropriate for you to live a dramatically reduced standard of living but the Court does believe that some cutbacks are necessary.

A. Know your current monthly budget

Knowing the monthly budget is important for the following:

In an alimony (we call this maintenance in Colorado) case, it is critical to show the standard of living and the financial need.
It is helpful in assessing specific needs of the children that may not be covered in basic child support (e.g. particular medical needs or private school expenses). Private school expenses may not be considered if (1) the parents disagree on the necessity or (2) the private school is not specifically needed for the educational needs of your child (for example, child with learning disabilities needs smaller case size -- not just a "better" education).
It will help you in planning your post-divorce budget.
If your spouse is self employed and under reporting his income, showing that monthly expenses exceed what they claim they make can show they are attempting to hide their true income.
A judge may utilize this information to determine temporary support while the case is pending.
You should know this stuff in order to properly manage your finances whether you are getting a divorce or not!

B. Make an estimated budget of post-divorce expenses.

This is important for your personal planning and will likely influence your objectives in the divorce negotiations. You need to know what you will need financially in order to evaluate your settlement options or what you will ask the judge for in a trial.

This will undoubtedly take some estimating on your part. But, that is why it is called an estimated budget. It will be a work in progress. The point is to give some forethought to what your living expenses will be as you start the new chapter in your life.

C. How to make your monthly budgets.

If you already maintain your checking account records on a software program like Quicken then the process is easy. You can simply print out a monthly budget report. If you don?t then you will need to sit down and look through your check register and/or your spouse?s check register for the past three months. This will reveal the expenses you may monthly and quarterly (divide the quarterly expenses by three and enter them in the budget as a monthly expense).

You will then want to think about any annual or semi-annual expenses you may have such as for life insurance, homeowner?s insurance, etc. and convert those to a monthly figure and enter it on the budgets also.

In setting out your budget, try to be as realistic as possible. You should be conservative in your budget (meaning don?t understate the expenses and end up stating a budget that doesn?t realistically meet your needs) without grossly overstating the budget (which a judge would frown on should the case go to court). It is admittedly a fine line. The best advice is to base it on as real numbers as possible.

The Financial Planning Association has a good article about making a budget. Another neat tool for managing your budget is Mvelopes, which is an online home budgeting system that easily create an online home budget, track all your spending, and always know exactly how much you have left to spend. The cost to join mvelopes ranges from $7.90-$13.20 per month. Although it seems ironic to spend money on a monthly membership to save money, I guess if you need the tools you have to start somewhere.

Full post as published by Colorado Family Law Blog on June 18, 2007 (boomark / email).