Your net worth indicates your current financial picture. A budget is meant to help you predict your future needs. Your budget will be critically important for setting expectations about what you can afford as well as negotiating any support payments. Realize that you will likely need to continually modify your budget as you go through negotiations.
You and your spouse should develop budgets independently. The only way to develop a realistic budget is to review your actual past spending. Your initial budget should show what it takes to maintain your current lifestyle. Depending on your situation, you may need to squeeze your budget later. For now, go through the records you have collected and ensure that you are including all that you have spent. Again, you may find an online worksheet to be enormously helpful.
If you are computer savvy, a copy of Intuit’s Quicken or Microsoft’s Money can help you create your budget and then track your progress as you go through your separation to make sure your numbers are realistic.
If you have children, a useful next step is to identify how much of each item in your budget is attributable to your children. Be fair when doing this, though. For instance, if you have two children, you cannot reasonably say that two-thirds of your car expenses are attributable to your children, since you would most likely still need a car without them. However, if you are driving a larger car, or more importantly, living in a larger house or apartment because the children live with you, it is reasonable to identify that difference. At this time, you may not be certain about the children’s living arrangements, so you may need to prepare versions of your budget for a couple of scenarios.
Having information from both parents about the costs that will be incurred as a result of caring for the children will be helpful when you negotiate child support. It is often the case that the spouse who is making the child support payments is concerned the money is going to support things other than the children. Having a clear budget that you can review and discuss can head off much of this conflict.
Your budgeting to this point has most likely focused on expenses. You will also need to calculate your post-divorce income. Your expenses are usually paid with after-tax income, so you will need to know how much you’re actually bringing home each month. Your divorce will affect the amount you pay in taxes as a result of several factors: a change in tax filing status from married to single, the way you agree to handle exemptions for dependents, and whether you end up with a home loan whose interest you can deduct. Although you may not initially know the details of how exemptions and real estate will be handled, as you move through the process, you need to keep an eye on your post-divorce tax situation, as it could significantly affect your ability to balance your budget.
When you and your spouse review each other’s budgets, you may find that your combined income is less than your expenses. If this is the case, you will need to take some time to review the situation. Control your urge to critique your spouse’s expenses, as that can easily inflame the situation. You may both need to reduce expenses, but it is better to focus on your own budget, because you are the best one to decide what is important to you.
Your budgets will be critical in negotiating any alimony or child support. It can be hard work to prepare an initial budget. However, it cannot be avoided if you are to have confidence and maintain control over the outcome of your divorce. In fact, you will most likely need several versions of your budget, preferably prepared in advance, that take into account various possibilities, such as the effect of selling your home (and the new housing expenses you incur), the effect of going back to work (and the new child care expenses that might result), and other possibilities that might be up for discussion as you and your spouse work to reach agreement.
