Budgeting after Divorce

According to William Donaldson, a certified financial planner and a certified divorce financial analyst, a failure to budget is one of the costly mistakes a person can make in a divorce settlement that can create financial devastation after the divorce. Sometimes a divorcing individual accepts an unfair settlement and finds that a few years later he or she is experiencing serious financial challenges.

“One of the most common mistakes made post-divorce is the failure to budget based on one’s new lifestyle,” Donaldson says. “We see this happen most often when one spouse keeps the home for the sake of the children or perhaps due to an emotional attachment. Because of the high value of the home, there are few other assets awarded in the settlement. The expense of maintaining the home and the lack of liquid assets often results in a rapid depletion of cash, leaving no choice but to sell the home. This scenario can be avoided if you take a good hard look at your expenses versus liquid assets and income.”

Finances may be one of the last things someone wants to think when a marriage is ending, but a budget is a must for most people in order to prepare for a new – and very often diminished – lifestyle and to get a fair settlement in the divorce.  A budget can be used to argue for alimony and/or child support. In some cases, a wife can use a budget  to convince the judge that she needs higher alimony payments. The judge may also order a husband to help pay expenses, such as health insurance or the children’s school tuition.

A budget is easy to make. Income includes all sources of income, including wages, interest income and any expected income from alimony or child support. 

 Against income, include mortgage or rent, utilities, groceries, transportation, medical expenses and loan payments. Occasional expenses such as clothing, gifts, dining out or other entertainment, and vacations should be included. Estimates may be used if necessary.

The moment of truth happens when income is compared with expenses.

In a perfect world, income is higher than expenses, but for most people in this less than perfect world, expenses outdistance income.

Faced with this grim reality, people do the obvious; they trim expenses. That private school education for Bobby gives way to the public schools. The For Sale sign goes up at the family home.  Sometimes people get a second job.

People face the music. Divorce has made them poorer. A budget is easy to make. Sticking to it is more of a challenge.

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