Christmas is the season for spending. You might ignore your budgets that time of year but don’t ignore your budget when you are going through a divorce!! Your budget is one of your most, if not the most, important documents that will be used in your divorce.
Budgets should reflect the changes divorce brings
In any divorce, a list of assets and debts, as well as income and expenses (the budget) must be prepared. In North Carolina, this summary document is called the Financial Affidavit. Usually divorce settlements, including spousal support, are negotiated using a snap shot of what the budget is today. That’s because lawyers are legal experts, not financial experts. The current budget is often incomplete, underestimates spending, fails to adequately address taxes and does not project how circumstances (and expenses) change.
Changes are inevitable in the years following divorce. Getting support based on an accurate budget, which reflects those changes, can be the difference between having savings for retirement or depleting your savings well before retirement age. Many of my clients are going through a “grey” divorce so this is especially important to them.
I will help you prepare an effective budget
In my work as a divorce financial planner and mediator, the budget is king. A benefit of hiring a Certified Divorce Financial Analyst (“CDFA”), even if you also hire a lawyer, is how I handle budgets more effectively:
- I will help you prepare a thorough budget, so we aren’t underestimating or guessing about what it costs you to live. I will ask you to take all of your bank statements and credit card statements for at least the last year and categorize each expense. Through experience, I can see what line items you might be missing so I will ask you questions. Because two households cost more than one, budget cuts are usually inevitable. When you are negotiating with your spouse, you will have a basis for knowing discretionary vs. non-discretionary expenses and what you can and might need to cut.
- Either you or your spouse, or maybe both of you, will be living in a new home. How do you envision your life in the next few years? What financial changes will result from the changes your life will have? I will help you prepare budgets which reflect not just today, but what you plan to do in the years ahead.
- Year by year I can stop and start a new budget in my software. You can see what happens as you buy or sell a house, send the kids to college, change your healthcare costs and start taking social security, just to name a few
- Yearly budget reports will show your changes in income. You can see what happens when support ends and the effect of inflation, rates of return on investments and taxes.
- When I work with both you and your spouse, I can run a report based on a proposed settlement that shows the future net worth for each of you. These net worth reports reflect not only future income and expenses but also appreciation in assets or more commonly, depletion of assets when spending exceeds income. This is a huge help when negotiating division of assets as well as support. For instance, rather than telling the your spouse what he (or sometimes she) needs to pay in alimony, it’s so much better when he can see the comparative long term financial effect that a proposed settlement has on each of you. That way the financially advantaged spouse sees the affect in real numbers rather than just abstract ideas. He or she will probably feel more compassionate and that will lead to more fair and digestible settlements for both of you.