Whether you are considering a Collaborative Divorce (which I recommend) or an “old school” divorce, which only really benefits the lawyers involved, I would strongly suggest that you start to develop your budget.  One of the great things about the Collaborative process is that this budget will be “forward looking” as opposed to “backward looking”.  In other words, in a litigated divorce, the parties are trying to replicate the marital standard of living, which means looking back at how you spent money while you were married.  This would make sense if you were going to stay living together and didn’t have legal bills – but you are probably in the process of separating (if you haven’t already) and therefore your budget now is going to be completely different than it was.  In a Collaborative Divorce, the parties should strive to try and figure out what things will cost going forward, so that a settlement can be reached that will benefit everyone.

This shouldn’t be too hard, as most expenses are generally going to be fixed (debts, car payments, school expenses, etc.), and others may be easy to adjust (mortgage for one person, an apartment rental for the other).

So, depending on which type of divorce you are considering, my next suggestion is to prepare two budgets: one that shows the situation in the house before the divorce filing, and one that is your estimated budget for after you and your spouse separate.

Most people don’t like to prepare one monthly budget, let alone two of them!  However, it is important to know what it currently costs to run your household.  This is helpful to show what your “marital standard of living” is.  Additionally, you must know what your costs of living will be after you separate.  I’ll go through each separately.

A.    Know your current monthly budget

Knowing the monthly budget is important for the following reasons:

  1. In an alimony case, it is critical to show the standard of living and the financial need.
  2. 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).
  3. It will help you in planning your post-separation/divorce budget.
  4. If your spouse is self employed and under-reporting their income (hopefully not an issue in a Collaborative Divorce), it would be helpful to show that their monthly expenses exceed what they claim their income
    is.  This can show that they are attempting to hide their true income.
  5. A judge may utilize this information to determine temporary support while the case is pending.
  6. You should know this information 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 properly evaluate your settlement options or to determine what to ask for in a trial.

There is no doubt that this will take some estimating and guesswork on your part. That’s why it is called an estimated budget. This is a work in progress. The point here is to give some forethought to what your living expenses will be as you start the next chapter of your life.

C.    How to make your monthly budgets.

If you already maintain your checking account records on a software program like Quicken or Microsoft Money, then the process will be relatively easy. You can simply print out a monthly budget report. If not, 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 have both monthly and quarterly (divide the quarterly expenses by three and enter them in the budget as a monthly expense).

You will also want to think about any annual or semi-annual expenses you may have, such as 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 with 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). The best advice is to base your budget on the most accurate numbers possible. You may also want to photocopy your monthly bills and receipts to provide proof of your expenses (and provide these to your attorney), should they ever come into question.

The information in this post was prepared in part with information originally posted on the Alabama Family Law Blog.