| Sargent & Lundy Savings Investment Plan |
| DIVORCE: CHARTING YOUR EXPENSES |
| The following excerpts are from an article in the Fall
1998 issue of "Divorce" magazine. The opinions of the author,
Laura Johnson, may or may not reflect those of the SIP Committee.
In a divorce, you'll hear the phrases "maintain a lifestyle to which your family is accustomed" and "reasonable needs." There's an inherent conflict between the concepts of lifestyle and reasonable needs. The cost to meet the reasonable needs of your family may be much different than the cost of your lifestyle. Your family's lifestyle and reasonable needs are the two components of expenses that play a part in a divorce. The difference in the definitions between "reasonable needs" and "lifestyle" becomes painfully obvious when a divorce court sets an amount of money for child support or spousal support. Quite often, the support amounts don't satisfy either spouse's expenses to maintain previous lifestyles or the family's current reasonable needs. This may lead to each ex-spouse believing that he or she is either paying too much or not receiving enough money for support. In reality, both spouses have to make adjustments in how they each pay for their needs and maintain their lifestyle. Historical and Current Expenses Your first step to determine the cost for your family's lifestyle is to gather documents showing how your family has spent its money over a period of time. Several years worth of records are optimum, but records beginning one year prior to any separation may suffice. Some of the records you need are: bank account registers, canceled checks, paid bills, credit-card statements, loan papers, and cash receipts. To keep better track of expenses, change some of your spending habits. Start paying for as many expenses as possible with a credit card or check. Keep a daily log of any cash purchases. Enter your current daily expenses under the proper categories into daily or weekly worksheets. At the end of a month, add up all of your weekly expenses by category to get a monthly total for each category. Then add all the months' totals and divide by the number of months to get an average monthly total for each expense. The average numbers you reach from your recordkeeping are the same ones you'll use for proving your reasonable needs. They will also help you substantiate and describe the historical cost to maintain your family's lifestyle. Organizing Your Records Organize your documents by year to prepare a historical accounting of your expenses. Define and list the categories of expenses and the family members who benefit from the expense. For example, canceled checks made out to the telephone, natural gas or electric companies could all be classified as utility expenses and all family members benefit. The next step is to review each canceled check, paid bill, receipt and credit card statement to categorize all the transactions. At the same time you are categorizing the expense, record it into your system. Enter the expenses that you pay annually in the month you make the payment. Examples of these expenses are real estate taxes or insurance premiums. If you don't pay all your credit-card bills in full every month, make a notation of the full amount of the bill and the amount you paid. In some instances, the payment you make on the balance owed may be a monthly expense. Don't forget categories for interest, penalties, and late fees. Direct and Indirect Expenses Once you have your family's expenses listed and categorized, allocate them further into direct and indirect expenses. Direct expenses are the expenses incurred specifically for a particular family member. Indirect expenses are the costs for housing and other types of expenses necessary to maintain your family's lifestyle. Examples of direct expenses are: tuition for a child to attend a private school, college tuition and room and board, clothing, medical expenses, and music lessons. Some indirect expenses are: rent, mortgage payments, utility bills, automobile loan payments, or insurance premiums. Once you have compiled the worksheets for your family's expenses, compute the average monthly total for the children's indirect expenses and direct expenses. Future Expenses Compare the average monthly costs for yourself - and for the children if you'll be receiving support - with the amount of income you expect to receive in spousal and child support after the divorce. Take into consideration the income you expect to earn or receive from all sources using the numbers in the worksheets regarding your family income. Inflation becomes a factor in your financial planning for long-range goals that you expect to obtain three or more years in the future. Check with a reference librarian, the financial pages of the newspaper, or an accountant to find out the predicted annual rate of inflation for the next few years. Once you have the rate, multiply it by the current cost of the item and again by the number of years you plan to save money to make the purchase. Planning for Special Situations and the Future You should also determine and plan for your family's future expenses and lifestyle. For example, if you need to plan for your home being sold, anticipate your family's costs for living in a new residence. Also, add into your future expenses any spousal or child support you may be responsible for paying. If you want to retain the family home, have the home inspected to learn if it needs any major repairs and the life expectancy of the roof and the heating and cooling system and major appliances. Add the cost of repairs and replacement of non-functioning or nearly worn-out items into your anticipated future expenses. This also applies to your vehicle if it's an older model, has high mileage, or is not in good working condition. Break down the costs of health insurance to ascertain what the cost is for the children's coverage only. If both parents have group health insurance coverage for the children, compare the type of coverage and costs to have the children on each plan. Learn the cost for the group coverage, the deductible, the type of benefits available, and the length of time you and your children are eligible to receive the insurance coverage. If your child has special medical needs, prepare an itemized list of all the special expenses you incur for the child's medical care. Make plans now for anticipated future expenses such as a vocational or college education, weddings or other future events. Financial Planning The task of budgeting your family's historical, current, and future expenses is difficult for some people. A financial planner or an accountant can help you set up the system and prepare the worksheets using information you provide. The assistance of the professional can also help you set goals and plan for future events. If necessary, they can also testify as expert witnesses to present your financial plan to the court. The responsibility for planning your financial future is still yours, even if you hire experts to help you set up your plan. Once started, it's relatively simple to keep track of your expenses and income. Saving and setting realistic goals are the challenges. But once you successfully reach a goal, life is sweet. |
This page updated on 2/22/99