Budget – just reading that word may have made your eyes glaze over with boredom. Or filled you with anxiety.
It’s rare that clients come to me excited about the topic. But I know from experience that budgeting can be a powerful tool; especially if you are preparing for or moving through a divorce.
Reaching a divorce settlement agreement involves a lot of high-staked, irrevocable decisions. A budget can be a valuable tool when making those decisions.
What Is a Budget? Why Do You Need One?
I want to set the tone for this article by offering a plain language definition for the word budget.
A budget is a summary of your household income and expenses that illustrates how money moves in to and out of your household.
“Having a clear understanding of your sources of income and how that income is spent will help you make better decisions.”
Those decisions might be as small as whether to eat dinner out one night a week or as big as whether to keep the house in your divorce settlement.
The oft-quoted phrase “knowledge is power” is absolutely true when it comes to budgeting.
Finally, having a budget can be useful in mediation for Temporary Orders and in settlement negotiations.
If you are asking for support payments, spousal maintenance[1] or a disproportionate share of the marital estate, a budget showing why you are making the request can bolster your argument.
Creating Your Budget
There is a good chance you’ve either never created a household budget or haven’t made one in many years.
Don’t worry.
Budgeting doesn’t have to be complex or difficult. Start with broad categories, which typically include:
- Income[2]
- Housing
- Utilities
- Living Expenses
- Medical Expenses
- Transportation
- Personal Care
- Child Care Expenses
- Debt Payments
- Other/Miscellaneous
Request your free budget worksheet
Budgeting for a life you aren’t yet leading takes some research.
Begin with the expenses you’re sure about (like how much you pay to get your hair cut) and mark items for research (like rent on an apartment or house in the area where you want to live).
Check your credit card and bank statements to find recurring fixed expenses like cell phone bills. And don’t forget to account for those expenses that only occur once or twice a year, like car insurance premiums.
Are there debt payments that must be made?
If so, include those in your budget.
In this phase of the process, you are gathering information — you can expect to do a good amount of reading statements, searching the web, and making educated guesses.
Once you complete most of your categories, do a sanity check.
Are you going to be spending more than you take in?
If so, discuss your options with your attorney or financial professional. Can you ask for temporary spousal maintenance?[3]
If not, what expenses can be lowered or eliminated? Is it wise to ask your soon-to-be-ex-spouse to take on some of the community debt in exchange for assets?
If you were previously a stay-at-home spouse, do you need to consider returning to work outside the home? Do you need to pursue further education so you can find a better-paying job?
Using Your Budget
During your divorce, you’ll make dozens of decisions and almost never have perfect knowledge or information about any of them.
Budgeting can make at least a few of these decisions less stressful. While budgeting is only one tool in your toolkit, it is often vital (and one that you can craft largely on your own).
Your budget can continue to serve you in the months and years after your divorce is settled. If you can make budgeting an annual exercise, you may find that you build more confidence about making financial decisions over time.
If you’re feeling overwhelmed with financial decisions or sorting out your finances, it might signal that you need to hire a financial professional to back you up.
Your attorney may be able to refer you to someone they trust. Two types of professionals you might consider working with are a Certified Divorce Financial Analyst™ (CDFA®) or CERTIFIED FINANCIAL PLANNER™ Professional (CFP®).
CDFAs like me specialize in the financial aspects of divorce and are well-positioned to help with everything from building your budgeting to assessing a settlement offer.
Want to learn more?
Schedule your free one-hour consultation
[1] This is the term we use in Texas for what is commonly known as alimony.
[2] For our purposes here, fill in the amount you bring home after pre-tax expenses and tax withholding. Income may also include items like child support payments, spousal maintenance payments, or income from rental properties.
[3] These are support payments your ex-spouse would make to you for a finite period after your divorce is final.
VK2024-1001