“Creating a post-divorce budget is key to negotiating a fair settlement”, says an experienced certified divorce financial analyst and mediator Denisa Tova, CFP, CDFA. “This is probably the most important piece of your divorce process, to figure out what it’s going to cost you to live on when you split one household into two”.
Start with a reasonable post-divorce budget. The goal is to get a realistic idea of your living expenses as you start negotiating with your spouse about balancing out your incomes. Eventually your spousal support will end, and then you’ll have to figure out how to pay your bills without it. The sooner you join the reality-based community and live within your new budget, the better prepared you’ll be for the future.
Here are a few major areas in your forward-looking post-divorce budget to do your homework. I added a few discretionary items that will be driven by how much income you will have. It is easier to trim than forgetting to add an expenses and then having to dip into savings or accumulate debt to cover it.
If you’re trying to decide whether you can afford to keep the marital home, this is the perfect place to start. If you have a mortgage that is currently in both of your names, you’ll need to see whether you can qualify for a re-fi in your name only – and if so, whether you can afford to keep the home.
Contact a mortgage lender to find out if you qualify to obtain a mortgage in your name and get a quote for a house payment. Tip: your housing expenses (including utilities, taxes and insurance) should not exceed 40 percent of total monthly gross income. That’s the figure you’ll have to plug into your budget.
Under this category don’t forget to add expenses such as: lawn care, snow removals, repairs for older homes and HOA fees, etc.
Don’t forget groceries, eating out, special food items if you have food restrictions, and supplements.
Look at your medical history. Do you have any chronic conditions, whether from disease or the slow and irrevocable process of aging? How many times do you visit your doctor annually? Will you have the same coverage post-divorce that you have now? What are your co-pays, and how many prescription drugs do you take?
Do the same for dental care. Your budget should plan for out-of-pocket cost of routine dental visits at least twice per year. Ditto for vision care. Calculate your expenses and enter those that are not covered by your vision plan. Examples could include a new pair of glasses every two years, annual eye exam, and supplies.
If you or your children need (or have) orthodontia or get allergy shots, those are considered extraordinary medical expenses, and sharing such expenses needs to be covered in your divorce agreement.
Besides medical and car insurance covered already, also don’t forget a life insurance, long term care insurance, liability umbrella policy, etc.
Car payments: If your vehicle is ten years and older, you’ll either have to replace it or substantially increase your car maintenance budget. There’s no good choice here – either way, you’ll have to suck it up. This figure should include a set of new tires every two years, quarterly oil changes, etc. Make sure to get a car insurance for your own vehicle(s).
Your state’s child support guidelines will dictate which children’s expenses are covered in child support and which are considered extraordinary. Some examples of basic expenses would be housing, food, clothing, regular transportation, school lunches, ordinary medical and dental expenses, allowances, and other customary expenses for which parents are deemed responsible.
Examples of extraordinary expenses (beyond basics but set by parents) are:
-For infants – special clothing, diapers, special foods, well-baby medical visits, more expensive day care and babysitting.
-For toddlers – full-time day care, immunizations.
-For school-aged children – school supplies, school trips and activities, school clothing, lessons, activity fees, special clothing and equipment, organizational fees and costs.
-For teenagers – car and car insurance, cell phone, birth control, advanced lessons and clinics, more expensive activity fees, special clothing and shoes, and graduation expenses.
-Gifted and talented – additional costs.
-Special needs kids (handicapped, developmentally or educationally delayed, ill, injured, or emotionally troubled) – additional costs.
-Extraordinary medical expenses – orthodontia, dental treatment, dental cleaning, eye exams and glasses, counseling, chiropractic, etc.
Kids’ extra-curricular activities:
You and your spouse will have to discuss this and incorporate your agreements into your parenting plan. You’ll need to carefully consider every one of the following items, and create a strong, mutually acceptable plan. Remember that child-related issues cause more friction, anger and discord between divorced spouses than any other factor, and last a lot longer!
How will decisions be made with respect to extra-curricular activities and extra-ordinary medical expenses? In other words, who decides whether little Susie spends the afternoon at soccer practice or at her piano lessons? And who pays?
Here are a few options:
-Each parent contributes a set amount into a joint account that is used solely for agreed upon
-Parents keep a jointly-owned credit card open and charge agreed upon expenses on it
-Each parent is responsible for an amount proportionate to his/her income.
And don’t forget to add Miscellaneous Items in your post-divorce budget, such as clothing, personal care, memberships, education, pet care, etc.
Denisa is a Certified Divorce Financial Analyst, Divorce Mediator. For close to two decades she has been helping hundreds of couples with her unique set of skills sets to divorce smart.