Guidelines for estimating miscellaneous expenses when developing a budget during the divorce process
Developing a budget is a critical component of valuing the marital estate (what a couple owns minus what a couple owes = the marital estate) and dissolving the marriage. Both parties and their divorce lawyers should create one (or more) budgets. You and your divorce lawyer should consider the following when budgeting for miscellaneous expenses:
Averaging historical daycare costs might be the best means of determining current and prospective amounts for budgeting purposes. However, children by their very nature are dynamic. If changes in circumstances of the children, such as going to school, are eminent, then those changes should be taken into account in the budgeting process. Parents who are returning to the workforce as a result of divorce should contact daycare providers to anticipate costs in this area. This item should not be overlooked. Childcare can be an extremely significant cost. The amount must be adequately addressed in budgeting and child support.
Child Support Payments (as expense item)
Child support payments will be budgeted as an expense item for one spouse and an income item for the other spouse.
Current payments for life insurance will be budgeted for whatever costs are expected to be incurred during the divorce process. Summary cancellation of policies is not usually a prudent decision. The family members whom the couple decided to protect by the insurance during the marriage still need protection even though a divorce is in progress. In addition, it is entirely possible that the laws governing the divorce of the couple prohibit this type of cancellation during the divorce process. Future life insurance costs are a matter of financial planning and the financial ability of the parties. Budgeting figures for future coverage will normally be obtained by contacting an appropriate carrier.
Recreation / Entertainment / Vacation
Perhaps the most difficult of all of the budget items to deal with is the allowance for luxuries. Above all else it can represent the loss of lifestyle, social status, and self-concept inherent to a divorce. For example, the $350-per-month health spa membership is replaced with the $50–per-month gym membership. Vacations to Europe and Mexico may be lost altogether. While it is possible that the economic status of the couple is such that there will be no change in lifestyle after the divorce, this is usually not the case. Normally, the standard of living of all parties will go down after a divorce. Consequently, the use of historical expenditures in this area should be suspect. Common sense, in light of the budget taken as a whole, would be a better guide in this area instead of what activities were enjoyed in the past.
Student loans are usually entered into budgets at their current rate of minimum payment. Some parties may have been actively attempting to pay off the debts during the course of the marriage and consequently paying more of the debts than was actually required. During the course of the divorce, because finances may be strained, the amount budgeted should be the minimum. The post-divorce budgeted amount can be the minimum or higher, based on the ability or desire of the payee.
Christmas, weddings, bar (or bat) mitzvahs, and birthdays are all occasions that customarily require the presentation of gifts. Maintenance of normal social contacts is important, and gifts are part of that contact. Consequently, gifts should be considered an obligation to be met, if possible. However, it is typical for parties to provide gifts on these occasions that are more or less in line with their financial status. As with other budget items, the parties should recognize that their economic status has changed, and the gifts they present should be in line with that new status. To effectuate this, your divorce lawyer might suggest capping the amount to be spent on gifts or, for example, having you and your spouse agree that all Christmas gifts are represented as being from Santa or from mom and dad jointly.
Gifts to charitable, social, or religious organizations are usually discretionary in nature. Consequently, the normal course of events is to curtail all donations of any type during the course of a divorce. These activities can resume after the parties have had the opportunity to assess their revised financial status. Some charitable contributions can become contractual in nature. That is, one or both of the parties have entered into a legal agreement to provide a certain level of funding to an organization, and that organization has the right to legally enforce payment. These types of situations have to be assessed on a case by case basis. However, a contractual obligation changes the status from discretionary to obligatory and may have to be entered as a specific item in the parties’ budgets.
Not all expenditures necessary to live can be predicted, nor should the time be spent in an attempt to do so. Reserve a catch-all line in your budget to simplify the process. The amounts for miscellaneous items will depend on the circumstances. If a party has spent considerable time and done adequate research on his or her future expenses, then the budgeted amount may be small, for example $50 to $100 per month. If a party has done a sweeping generalization budget, this category may be significantly higher. A single person living alone may have fewer miscellaneous expenses than a person living with two children. Be wary of large entries in this area. Such entrees can be a symptom of inadequate planning or an attempt to pad the overall expenses.
Savings / Emergencies
Savings and/or provisions for emergencies are not normally considered in a current budget. Making deposits to savings is a discretionary activity and simply may not be possible during a divorce. Emergencies occurring during the course of the divorce will be addressed as part of the divorce process and be responded to by the parties or assets of the marital estate. Consequently, budgeting for them is unnecessary. The post-divorce budget, however, should include provisions for savings and emergencies and will be in line with the financial ability of the parties.
FICA, Medicare, federal, and state taxes are mandatory obligations that should be a part of the budget process. Exercise caution in budgeting the amounts withheld from an individual’s paycheck for state and federal taxes. These amounts can be adjusted by an individual and may not represent the actual taxes that he or she will be expected to pay.
"He went far above & beyond what was expected!"- Nita F.
"I had an excellent experience working with Thad Murphy and his amazing staff."- Rhonda B.
"Great answers to questions and quick to get ahold of."- R.G.
"Great service and fair prices."- Julia T.
Free Initial Case Evaluation
Local Iowa Attorneys - We Understand YOU
Over 60 Years Of Combined Experienced
We Advocate For Our Clients