One of your most essential tasks in a divorce mediation or a Collaborative divorce is to prepare a summary of your expenses, which we will call your budget. A budget by its very nature is only an estimate, or projection, of future income and expenses. Past experience, projected needs, and other assumptions provide the information necessary to make a useful projection.
Your budget isn’t necessarily what you’ve been able to afford. It is what you need. What you need can be based on how you and your spouse lived when you were together, how you are currently living, and/or needs that have popped up that are different from when you were together. So, for example, if at the moment you can’t afford to have a housekeeper but the two of you had one, and you clearly need one, you would include a reasonable cost for a housekeeper for yourself in your budget. If your need for therapy has increased since you separated, you would include a reasonable cost for the therapy that you need, which might be more than what you budgeted for or spent when you were together.
Budget preparation tips
- Personal monthly expense figures should cover all members of the household actually supported by you or contributing to your expenses. The amounts you list should not include any expenses for your spouse. In other words, complete the form as if your spouse is not a member of your household, so that you will be able to determine what it will cost you for yourself and the children who will live with you. List only the portion of expenses actually paid by you.
- Compute an average monthly expense for each item using your checkbook records, credit card statements, Quicken or another computer program, personal knowledge, etc. If you do not have readily available information, such as health and life insurance, replacement values, etc., take the time to call and obtain estimates based on your living as a single person or with your children, if applicable to your case. Remember this is a monthly budget. Many expenses are seasonal such as holiday gifts and vacations. Some are periodic such as property taxes. Estimate the yearly total and divide by 12 months.
- If a certain expense occurs only every so many years such as house painting, it is still important to list it as a monthly expense. If, for example, the cost was $5,000 and the expense occurred every 5 years, then divide the $5,000 by 60 months. Or if you have a large dental expense coming up, maybe divide the expense over a couple of years. An alternative is to list the upcoming expense as a one time item or future major expense. It is just important not to put the one time expense in the monthly column.
- If you have children, it is helpful to make a separate list of their expenses. Expenses that vary (example: childcare) or are one-time expenses (example: summer camp) should be totaled up for the year and divided by 12.
- Even though you may not set aside a particular amount each month for clothing you usually buy on a seasonal basis, average what you spend over the year keeping in mind coats, socks, underwear, and shoes.
- Include only insurance items paid privately such as life, health, and disability. If you obtain health insurance through employee deductions from your employer, list those amounts in the section for employer deductions.
- Auto costs are rarely paid monthly. Remember to factor in car registration, insurance, tires, and repairs.
- Only installment and/or credit card payments which are currently being paid should be included
- Take care not to duplicate costs.
Your budget will reflect your personal values and needs. What is necessary and appropriate varies from person to person and family to family. The more time you spend preparing a complete and current statement of your needs, the better chance of reaching an agreement with your spouse that best meets those needs, considering the available resources. Be as accurate as possible regarding your actual monthly expenses but do not “shortchange” yourself. Estimates are fine, but the amounts should be realistic. The object is to set out your realistic and actual needs going forward. Remember that preparing your budget does not mean that your spouse is required to make up the difference between what you need and what s/he can or will pay – it is simply a starting point for your discussions.
Judith F. Sterling, CDFA, CPA is a divorce financial professional practicing in San Francisco, Marin, and Sonoma Counties. More information in her bio on the “Find A Professional” page. Jennifer Jackson, JD is an attorney practicing in San Francisco and Sonoma Counties. More information in her bio on the “Find A Professional” page.