Charting your expenses
Your family’s lifestyle and reasonable needs are two components of expenses that play a part in a divorce. The task of budgeting your family’s past, present, and future expenses may seem daunting. Here’s some help to get you started.
In a divorce, you’ll hear the phrases “maintain a lifestyle to which your family is accustomed” and “reasonable needs.” There’s an inherent conflict between the concepts of lifestyle and reasonable needs. The cost to meet the reasonable needs of your family may be much different than the cost of your lifestyle.
Webster’s Dictionary defines “lifestyle” as the “consistent, integrated way of life of an individual as typified by his manner, attitudes, possessions, etc.” Reasonable needs are those things necessary to sustain a family with the basic requirements. The qualifier “reasonable” adds the limitations of not excessive or extreme.
Your family’s lifestyle and reasonable needs are the two components of expenses that play a part in a divorce. The difference in the definitions between “reasonable needs” and “lifestyle” becomes painfully obvious when a divorce court sets an amount of money for child support or spousal support. Quite often, the support amounts don’t satisfy either spouse’s expenses to maintain previous lifestyles or the family’s current reasonable needs. This may lead to each ex-spouse believing that he or she is either paying too much or not receiving enough money for support. In reality, both spouses have to make adjustments in how they each pay for their needs and maintain their lifestyle.
Historical and Current Expenses
Your first step to determine the cost for your family’s lifestyle is to gather documents showing how your family has spent its money over a period of time. Several years worth of records are optimum, but records beginning one year prior to any separation may suffice. Some of the records you need are: bank account registers, canceled checks, paid bills, credit-card statements, loan papers, and cash receipts.
To keep better track of expenses, change some of your spending habits. Start paying for as many expenses as possible with a credit card or check. Keep a daily log of any cash purchases.
Enter your current daily expenses under the proper categories into daily or weekly worksheets. An example of a monthly worksheet can be found at the end of this story; to modify it for daily use, substitute “Mon., Tues., Wed.,” etc., or “week one, week two, week three” etc. for “Jan., Feb., Mar.,” etc. At the end of a month, add up all of your weekly expenses by category to get a monthly total for each category. Then add all the months’ totals and divide by the number of months to get an average monthly total for each expense.
The average numbers you reach from your record keeping are the same ones you’ll use for proving your reasonable needs. They will also help you substantiate and describe the historical cost to maintain your family’s lifestyle.
Organizing Your Records
Organize your documents by year to prepare a historical accounting of your expenses.
Define and list the categories of expenses and the family members who benefit from the expense. For example, canceled checks made out to the telephone, natural gas or electric companies could all be classified as utility expenses and all family members benefit.
The next step is to review each canceled check, paid bill, receipt and credit card statement to categorize all the transactions. At the same time you are categorizing the expense, record it into your system. Enter the expenses that you pay annually in the month you make the payment. Examples of these expenses are real estate taxes or insurance premiums.
If you don’t pay all your credit-card bills in full every month, make a notation of the full amount of the bill and the amount you paid.
In some instances, the payment you make on the balance owed may be a monthly expense. Don’t forget categories for interest, penalties, and late fees.
Direct and Indirect Expenses
Once you have your family’s expenses listed and categorized, allocate them further into direct and indirect expenses. Direct expenses are the expenses incurred specifically for a particular family member. Indirect expenses are the costs for housing and other types of expenses necessary to maintain your family’s lifestyle.
Examples of direct expenses are: tuition for a child to attend a private school, college tuition and room and board, clothing, medical expenses, and music lessons. Some indirect expenses are: rent, mortgage payments, utility bills, automobile loan payments, or insurance premiums. Once you have compiled the worksheets for your family’s expenses, compute the average monthly total for the children’s indirect expenses and direct expenses.
One hint about expenses: be sure to take a look at what your spouse is doing with his or her money, especially if you both earn a good income. It’s not uncommon for divorce lawyers to suggest that a spouse earning an income that exceeds his or her reasonable needs use the excess income to purchase prepaid items, household goods, or other merchandise such as a cemetery plot, a future vacation, or furniture to fill a new home. The intended effect is a reduction in your spouse’s bank account balances and an increase in his or her consumer debt — and subsequently, a reduction in his or her assumed net worth.
Another planning tactic is to prepay household bills that are not customarily listed as current debts on court financial disclosure forms. The goal is to reduce the amount of money in the bank account on the date of the divorce while saving the benefit and use of the money for the spouse who earned it.
Compare the average monthly costs for yourself — and for the children if you’ll be receiving support — with the amount of income you expect to receive in spousal and child support after the divorce. Take into consideration the income you expect to earn or receive from all sources using the numbers in the worksheets regarding your family income.
Inflation becomes a factor in your financial planning for long-range goals that you expect to obtain three or more years in the future. Check with a reference librarian, the financial pages of the newspaper, or an accountant to find out the predicted annual rate of inflation for the next few years. Once you have the rate, multiply it by the current cost of the item and again by the number of years you plan to save money to make the purchase.
Planning for Special Situations and the Future
You should also determine and plan for your family’s future expenses and lifestyle. For example, if you need to plan for your home being sold, anticipate your family’s costs for living in a new residence. Also, add into your future expenses any spousal or child support you may be responsible for paying.
If you want to retain the family home, have the home inspected to learn if it needs any major repairs and the life expectancy of the roof and the heating and cooling system and major appliances. Add the cost of repairs and replacement of non-functioning or nearly worn-out items into your anticipated future expenses. This also applies to your vehicle if it’s an older model, has high mileage, or is not in good working condition.
Get medical and dental checkups for yourself and your children prior to the divorce. If you have postponed medical or dental care, especially if you are a dependent spouse, take care of your needs prior to the divorce. The same applies for your children. If glasses, contacts, orthodontia, or braces are in the immediate future, get an estimate of the cost of the treatment or supplies and the terms of payment.
Break down the costs of health insurance to ascertain what the cost is for the children’s coverage only. If both parents have group health insurance coverage for the children, compare the type of coverage and costs to have the children on each plan. Learn the cost for the group coverage, the deductible, the type of benefits available, and the length of time you and your children are eligible to receive the insurance coverage.
If your child has special medical needs, prepare an itemized list of all the special expenses you incur for the child’s medical care. For example, a child with diabetes has higher expenses for medical care, recreation and food than a child without diabetes. The difference between the costs in these categories for a diabetic child and a non-diabetic child may be the basis for requesting additional support and special health-insurance provisions.
Make plans now for anticipated future expenses such as a vocational or college education, weddings or other future events.
Settlement outside of Court
You and your spouse have much more freedom to handle these issues through a settlement agreement. If you go to trial, a judge may neither have the power nor the inclination to consider your family’s long range future situation. A judgment could lead to additional conflict and litigation between you and your ex-spouse.
One word of warning: even if you have an agreement now, you may still find yourself squared-off against your ex-spouse on these issues due to interpretation or enforcement of the agreement. You may also find yourself back in family law court to litigate the modification of an existing order.
Blended Families and Modification of Court Orders
Many families today are blended with children from two or more marriages. In cases that seek to modify a divorce order, the family blends may consist of:
- a second spouse
- children from a first or second marriage
- an ex-spouse
Many modification actions involve the increase, decrease, or termination of some type of support obligation. The court considers the living expenses for each separate family unit. Prepare your family expenses so that you segregate the direct expenses of each family member.
There are no clear guidelines for this issue. One of the unfortunate consequences of blended families is that families headed by a spouse with financial obligations or custody of children from a prior marriage has to make do with less spendable income. The courts are just beginning to recognize this situation and some states are modifying support laws and charts to take children from a current marriage into account when modifying a prior support order. Ask your lawyer about your state’s divorce law concerning blended families and support issues. Prepare your expense and income worksheets to present your evidence according to your state’s law.
The task of budgeting your family’s historical, current, and future expenses is difficult for some people. A financial planner or an accountant can help you set up the system and prepare the worksheets using information you provide. The assistance of the professional can also help you set goals and plan for future events. If necessary, they can also testify as expert witnesses to present your financial plan to the court.
The responsibility for planning your financial future is still yours, even if you hire experts to help you set up your plan. Once started, it’s relatively simple to keep track of your expenses and income. Saving and setting realistic goals are the challenges. But once you successfully reach a goal, life is sweet.
Mortgage, Rent, Real Estate Taxes, Assessment, Insurance, Home Equity Loan, Condominium Fee
Electricity, Natural Gas/Oil, Propane, Water, Sewer, Septic, Regular Telephone, Cellular Telephone, Long Distance, Voice Mail, Pager, Cable TV, Satellite TV, Internet Service, Firewood
- Home Care
Maid, Housekeeper, Lawn Mowing, Lawn Fertilizing, Lawn Seeding, Landscaping, Snow Removal, Tree/Shrub Care, Chimney Cleaning, Window Cleaning, Gutter Cleaning, Carpet Cleaning, Rug Cleaning, Air Duct Cleaning, Floor Care, Wallpapering, Exterminator, Renovations, Interior Repairs, Exterior Repairs, Interior Furnishings, Exterior Furnishings, Furniture, Decorating, Window Coverings, Weatherizing
Umbrella, Casualty, Life, Disability, Health, Dental, Vision, Prescription, Credit Card, Medicare Supplement, Travel Insurance, Vehicles, Vehicle Loan, Vehicle Lease, License, Taxes, Parts Replacement, Gasoline, Oil Changes, Insurance, Inspections, Repairs
- Personal Needs
Groceries, Eating Out, Clothing, Dry Cleaning, Laundry, Medical Care, Dental Care, Vision Care, Orthodontia, Glasses/Contacts, Shoes, Beauty Shop, Barber Shop, Nail Salon, Jewelry, Over/Counter Medicines, Prescriptions, Cosmetics, Massage, Health Club, Exercise Equipment
Relaxation, Hobbies, Entertainment, Sport Activities, Club Dues, Guests, Visiting, Short Trips, Vacation, Equipment, Clothing
Tuition, Uniforms, Lunches, Room & Board, Books, Supplies, Fees, Club Dues, Frat/Sorority Dues, Class Rings, School Pictures, Year Book, Religion Classes, Summer Camp, Tutor, Counselor, Financial Aid, Advisor
- Child Care
Nursery School, Day Care, Baby-sitter, After-school care, Before-school care
Veterinarian, Food, Grooming, Boarding, Equipment, Medical
- Special Needs
Educational, Medical, Equipment, Accommodations, Elder Care, Home Nursing, Home Medical Care
- Professional Services
Lawyer, Accountant, Financial Planner, Investment Advisor, Stock Broker
Political Contributions, Fund Raisers
Tithes, Contributions, Donations
Federal Income, State Income, City Income, Personal Property, Real Property, Self Employment
Interest, Credit Card Balances, Personal Loan, Unpaid Bills, Penalties, Consumer Loan, Delinquent Taxes
Decorations, Gifts, Cards
- Special Events
Gifts, Invitations, Cards, Parties, Announcements, Decorations, Birthdays/Anniversaries
Bank Fees, IRA Fees, Credit Card Fees, Tickets, Film Processing, Fines, Film, Video Tapes, Cassette Tapes, Linens, Kitchen Supplies, Bathroom Supplies, Cleaning Supplies, Laundry Supplies, Buying Club Fee, Warranty Extension, Computer, Purchase, Printer, Hardware Upgrades, Software, Software Upgrades, Diskettes, Paper, Printer Refill, Additional Phone Line, Ancillary Equipment, Home Modifications, Subscriptions, Magazines, Record Club, Book Club, Newspaper
Child Support, Spousal Support, Judgments
Annual Fee, Initiation Fees, Club Membership
College, Emergency Fund, Short Term Goals, Intermed. Goals, Long Term Goals, Retirement
This article has been edited and excerpted from Divorce Strategy: Tactics for a Civil Financial Divorce. This step-by-step guide gives you the tools and information you need to plan and manage your financial divorce, helping you to reduce — and in some cases eliminate — the negative financial consequences often associated with divorce.