How to Prepare for Divorce Part 4: Create a Pre & Post Divorce Budget
In Part 3 of our series, we talked in detail about putting together your divorce team. This starts with choosing an attorney who focuses primarily on family law, has extensive experience both inside and outside the courtroom, and is someone you feel comfortable working with. We also talked about enlisting other professionals when needed to help you with more complex issues that may arise, and the importance of building a support network to help get you through this difficult time. Today, we are going to focus on finances; and specifically, creating a pre and post-divorce budget.
Dissolving a marriage and untangling two peoples’ finances can be a messy and complicated process. Even before the important financial issues (e.g., child support, alimony, division of marital assets, etc.) during the divorce are settled, you need to prepare yourself financially for the long road ahead.
Creating a Pre-Divorce Budget
Creating a budget as you enter the divorce process is not only helpful in predicting your income and expenses while the process is ongoing, it also provides a financial blueprint for the court, and good general guidelines for your post-divorce budget.
Creating a budget may seem like a tedious process, especially if you have never done it before. Keeping track of income and expenses and organizing it into a monthly budget that helps you make ends meet is not necessarily “fun”, but it is well worth the effort.
There are a few ways you can create your budget. You can do it the old school way, using just a pen or pencil and a notebook or ledger. You can create a spreadsheet on your computer using Microsoft Excel or a similar program. Or you can use one of several different budgeting software options that are available out there. Whatever way you feel comfortable with is just fine.
Once you have decided how you are going to set up your budget, you will need to gather the information needed to accurately account for all of your income and spending. This may include:
- Bank statements
- Credit card receipts
- Check registers (if you still use checks)
- Pay stubs
- Utility bills
- Insurance statements
- Investment information
- Tax information
Next, you will want to ensure that the data you have collected is organized in a way that is consistent with how it will be used in your divorce proceeding. South Carolina uses a financial declaration form that includes detailed information about the income, expenses, assets, and debts of each spouse. Use this form as a guideline when you set up your pre-divorce budget. Another good reason to use this form for your budget is you will likely have to complete and submit this form anyway when you go before the family court.
Here are a few other financial tips to follow as you go through the divorce process:
- Save more and spend less: Divorce is an expensive process, and you are likely to have some financial challenges as you adjust from being married to being single. During this time, it is a good idea to cut out unnecessary purchases (such as eating out at high-end restaurants or taking expensive vacations) and instead, set money aside in a savings account to help get you through. A savings account can not only help you as you adjust to a one-earner household, but it can make it easier to pay any additional legal or court costs that may come up as your case goes on.
- Avoid any major purchases: Along the same lines as the previous point, when you are going through a divorce, it is best to avoid large purchases such as buying a new house or a brand-new vehicle at least until the process is completed. If you are considering any such major purchases, it would be a good idea to consult an attorney before you do so, since there may be implications regarding marital debt and how that may affect the divorce or separation action.
- Seek help it needed: If you are having trouble dealing with your finances during a divorce, do not be afraid to reach out for help. In addition to your divorce lawyer, you may need to speak with a financial analyst who has expertise regarding the effect the divorce will have on your current and future financial situation.
Creating your Post-Divorce Budget
With your pre-divorce budget already in place, it will be much easier to set up your post-divorce budget once the process is finalized. But even before that, the figures from your pre-divorce budget that you enter into the financial declaration form will help determine the amount of child support and alimony that should be paid.
Your post-divorce budget can be organized similarly to your pre-divorce budget, with post-decree support payments or receipts now accounted for. And although you may not be required to continue keeping a detailed budget once your divorce is finalized, it is still a good practice to do so.
For most divorcees, finances are much tighter for people than they were when they were married. For example, making two monthly housing payments instead of one on the same combined income (not to mention double the utilities, insurance, etc.) will no doubt reduce the amount of disposable income available to each party.
By keeping a budget, you will have a firmer handle on your income and expenses, and where all your money comes from and goes to. This may seem like more information than you want to know, especially if you do not feel particularly good about your current financial picture. However, by having this information, you will be able to see what areas of your budget need to be adjusted to help ensure that you are able to make ends meet and maintain your financial health as you start your new life.