Finance - Creating a Budget

Q: How can a budget can help me in my divorce negotiations?

A: Preparing a budget can help significantly if there are children and child support is an issue.

Income and certain expenses are almost always a part of the child support calculation.  The higher the expenses you show, typically the more favorably to you the child support calculation comes out.

Preparing a budget can also help significantly if you're preparing to ask for alimony (or defend against a request for alimony).

In most states, the alimony award (if any) will depend on the recipient's expenses, and sometimes on the payer's expenses as well.

The more of your own everyday expenses that are included in your presentation to the court, the more favorable to your your alimony award is likely to be. 

Also, if you can show a judge that the recipient does not need his or her expenses, you can reduce the award below what it would have been.

Q: Other than the negotiations, is there a reason to have a budget?

A: Yes.  Your income and expense situation may be changing dramatically.  By getting a handle on what your expenses are, you can avoid a common mistake -- overspending early on, and being trapped by debt later. 

If you create a budget and take a hard look at your expenses now, this can be the first step in making the downward adjustment in living standard that often accompanies divorce. .   

Q: What kinds of things should I include in my budget?

A: You can group your expenses as "household expenses," "children's expenses" and "personal expenses."  Household expenses include things like rent or mortgage, maintenance, property tax, homeowner's insurance, utilities, and so on.  Children's expenses include things like child care, clothing, groceries for the kids, equipment, and school supplies.  Personal expenses include things like health insurance, car payments, meals and entertainment, groceries, child support and alimony from previous relationships, and so on.

Q: How can I cut back on my expenses?

A: The following is by no means an exhaustive list -- and you may already be doing all these things.  But it may contain ideas you find useful:

Here are some tips (in no particular order) on cutting your expenses:

• Resist making expenditures on things you will no longer be able to afford, such as clothes, vacations, luxury items, or country club memberships.
  
• Buy and cook your own meals (including lunch).
  
• Avoid prepared foods in supermarkets.
  
• Buy clothing second hand, and buy at end-of-season-sales. Shop at clothing discount stores.
  
• Stop smoking, drinking, and drugs. This is easier said than done. But these things can be enormously expensive. And stopping them can benefit your health (immediately) and your mood (eventually) as well.
  
• Buy used furniture - it can be incredibly cheap.
  
• Take walks or borrow books from your library instead of other costly leisure activities.
  
• Avoid shopping malls.
  
• Turn the thermostat cooler in winter and warmer in summer.
  
• Track your expenses. Half the battle is knowing where the money went. Use a product like Intuit's Quicken or Microsoft Money that can give you reports by category on where your money went. With the charts in front of you, you can decide which expenses to cut.
  
• Keep current monthly with your credit cards. If you won't be able to afford it at the end of the month, try not to buy it.
  
• Go on an "austerity plan." Buy only what you need.

Q: Can alimony help me cover my expenses even before the divorce?

A: Yes, most if not all states permit one party to pay the other party alimony during the divorce case.  This is called "alimony pendente lite," which means "alimony while the litigation is pending."

Q: I would like to support my spouse during the case.  How about if I just informally give her (or him) some cash each month?

A: That's OK, but you should get that agreement in writing.  The reason is that you need the agreement in writing in order to deduct the payments as "alimony" for tax purposes.  (Your spouse will have to report the payments as income for tax purposes.)   

Q: I'm a full-time mom, now, but I think I'm going to have to go back to work after the divorce.  I'm looking for a job.  Is there anything else I should be focused on?

A: Be sure you figure out how much day care is going to cost, and try to have that cost factored into your negotiations.      

Q: Are there any tax savings opportunities here?

A: Yes, there is the child care credit.   But be sure to think about which parent will claim the child care credit on his or her tax return. 

Under the tax law, the parent who claims the child care credit can only be the parent who claims the exemption for the child. 

To maximize the tax benefit, you can arrange to have the parent who claims the tax exemption be the one to pay the child care costs.

The other parent can increase support or alimony payments to balance this out..   

Q: Can the Family Law Software Planner help with the budgeting process.

A: The Family Law Software Planner has a budgeting chapter with categories all filled out and ready for you to enter information. 

It is likely to prompt you for items you would have forgotten, increasing the expense list you present to your spouse and the court.

The Family Law Software Planner can also print out a nice chart for you, which can be very convincing in your negotiations with your spouse.

The Planner automatically takes account of the tax effects.  Its calculations will show you how much you can gain by planning wisely for tax savings.   The tax savings alone can easily more than justify the purchase price.

In addition, the Planner is filled with tips and suggestions on managing various aspects of your budget.

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