With divorce comes change. Preparation of a future budget, outside of the marriage, is often overlooked by attorneys and their clients when dealing with a divorce. So much of divorce ends up being about compromise, and just like the splitting of assets is an important aspect, understanding and budgeting for the future can be equally as important. There are many reasons why family law practitioners should have the clients prepare budgets:

1. It can help the attorneys find out about any extraordinary expenses the parties may have (i.e. private school tuition, medical expenses, expensive hobbies, etc.)
2. It can help the attorneys understand what the true income of the family is (i.e. the business owner who is trying to minimize income). Finding out what the yearly expenses have been may show the parties’ true earning capacity. For example, if the parties have $200,000 in yearly expenses and the business owner is stating that his gross income is $125,000 as the sole breadwinner, the attorney may decide to reevaluate the situation.
3. It is important to have a budget of past expenses in order to compare them to a budget for the future as a single party. This will help your client better understand what he or she is able to do moving forward. Having a client prepare a future budget prevents the client from calling you after the case is finished, stating that he/she does not have enough money from the settlement. A client proceeding through a divorce (especially one who didn’t have control of the finances) should always know realistically what he or she will be looking at with regard to the new situation. How can a dependent spouse know how much alimony or percentage of the assets he/she will need, without having a future projected budget?
4. It can help to show the standard of living of the parties during the marriage.  If you have a dependent spouse who is seeking alimony, an accurate budget is one way of showing what the standard of living was during the marriage and how much alimony or post separation support that party is going to need.

At the time of the first meeting with our Family Law clients, we do our best to prepare our clients to start preparing a budget for the previous calendar year. As a practitioner, we explain to our clients the pros and cons of completing the budget. The goal is to have the client look over what he/she spent over the course of the year; this includes everything from the electric bill to private school tuition. It is often helpful for the client to provide a statement for each expense. If it is a reoccurring expense that doesn’t change, it can be as simple as one statement. If it is a non-reoccurring expense, or an expense that changes over time, it can be helpful to have a printout from the utility company, daycare provider, etc. The goal is to see what is spent over the course of the year. The yearly budget is preferred, as monthly expenses fluctuate. The hope is that the yearly budget will help with the overall divorce settlement, but even before getting to that point, the yearly budget may play a role in child/spousal support negotiations. If a client is concerned about how much to take from his/her spouse in child/spousal support during the negotiation phase, we can use the budget to give our client peace of mind that the number being negotiated is doable. Alternatively, we can let our client know when he/she must reevaluate some of his/her expenses.

The average household does not have any clue as to what their overall expenses are through the course of the year. It is hard for you, or me, to have a good understanding of how much money is spent on groceries, gas, or even haircuts. It is unrealistic in most cases for people to think that they can have the same standard living after the divorce. Preparing for the realities of what to expect post-divorce or post-separation leads to happier clients.

In order to properly budget, you need to first look at all sources of income. Sources of income can include projected child support and/or post separation support. It is also important to highlight any expenses that are necessary and any expenses that are luxuries and/or not necessary. We want our clients to ask themselves whether they can live without certain items (i.e. do they need cable and streaming services? Do they need lawn service?). In some cases, clients will have a tough job of eliminating luxuries. Utilizing our expertise in this area, we do our best to help parties identify areas to save.

In preparing our clients for budget completion, we often ask them to gather the following:

• At least three years of tax returns
• Mortgage statements
• Utility bills
• Insurance premium payments
• Payroll statements
• Checking and savings statements
• Credit card receipts
• Social Security earnings statement
• Retirement account statement

For additional information, please contact Thomas Clark at tclark@tuckerlaw.com or at (717) 221-7952.