5 Tips on How to Create a Budget for Separation or Divorce
One of the scariest aspects of undergoing a legal separation or divorce is the financial uncertainty. “What can I afford after divorce?” “How much can I spend each month without going into debt?” In many of my divorce mediations, at least one of the spouses is uncertain about the finances. How do the parties get a handle on all of this? Below are 5 tips for creating a realistic budget for divorce and avoiding going into debt:
1. Analyze Income- Often a starting point in my mediation process is to collect homework from my clients relating to their respective incomes. This includes personal and business tax returns and may also include looking at other financials and documents, especially if either party is concerned about other income sources not readily apparent in the tax returns.
2. Track your Expenses- Try to get a sense of what your monthly expenses will be when you separate. There will be some reoccurring monthly expenses, like rent/mortgage, utilities, and insurance, and some expenses will be variable, like food, clothing, transportation, cosmetics, and entertainment. Variable expenses involve more educated guessing. When you think you may be heading towards a divorce, even before the process starts, it is a good idea to start tracking your monthly expenses to get a rough idea of how much you spend on average each month.
3. Consider your Assets and Debts- If you have significant assets or significant debts, these are factors to consider in creating a budget for yourself post-divorce. If you have significant assets, you may be able to sell some assets to temporarily supplement income, while being mindful of expenses. If you have significant debt, you will want to consider that as well, in planning for your monthly budget post separation.
4. Consult with an Attorney- If you are contemplating a divorce, it is a good idea to consult with an attorney before making any significant lifestyle change that could increase your debt. He/she can provide you with insight about issues that will be addressed during the divorce process, including spousal support or child support (if potentially available).
5. Consult with a Financial Expert- A financial expert can help you create a budget based upon your income, expenses, assets, and debts. Depending upon your circumstance, you may want to hire one or more of the following: certified divorce financial analyst, a CPA, certified financial planner, and/or business valuation expert.
Yes, I am an attorney but I am not your attorney and this article does not create an attorney client relationship. This article is legal information and should not be seen as legal advice. You should consult with an attorney regarding your situation before you rely on this information.