Heading for a Divorce? Determine Your Post-Split Expenses

Divorce and your finances
Divorce and your finances

Editor's Note: This is the third of a three-part series that will cover five key financial steps to take before entering divorce negotiations.Part One covered why a review of your credit report is essential, and Part Two covered tallying your assets and getting them appraised.

During divorce negotiations, calculating living costs, including child care, that were incurred during the marriage and projecting those expenses into the future can have a major impact on who gets how much in the settlement and why. While it might be difficult to do, Noah Rosenfarb, a licensed certified divorce financial analyst (CDFA) and managing director of Freedom Divorce Advisors in New Jersey, suggests that both parties in a divorce find a way to work together at the outset of negotiations to jointly determine their total household expenses during the marriage, because it will save time and money later.

It can also be helpful to jointly negotiate the cost of some of the ongoing expenses that will occur after the divorce is final. This can eliminate duplication of costs such as buying two video-game consoles for the children or buying excessive amounts of clothing for them.

While determining expenses jointly is great when it works, it isn't common. Often, divorcing parties can't agree on what expenses will be after separation because they rarely see eye-to-eye on how lavish their former lifestyle was.

"The higher income earning spouse tends to minimize the couple's expenses, while the person seeking alimony, tends to exaggerate the expenses," Rosenfarb says.

For those who can do it, calculating expenses jointly helps clarify points in the negotiation that should be acceptable to both parties. However, creating your own expense estimates and budget projections is an essential exercise because you must come to the negotiations with someplace to start.

4. Project What Your Expenses Will Be After The Divorce: The budget you had prior to the divorce will definitely change afterward, so determine if your income plus the settlement will accommodate your expenses. Many newly separated people find themselves shocked, having failed to realize how expensive a lifestyle they'd been leading until they have to pay for it on their own. Be prepared to document your expenses so that you can receive a fair settlement, but also be prepared to trim your expenses, because alimony payments may not be what you expect.

Contrary to what most people might expect, Carole Peck, a licensed CDFA in Florida and Illinois, says the spouse who gets the house in the settlement often gets the worst of the deal. That's because the house comes packed with huge extra expenses such as property taxes, higher energy bills and repair and maintenance costs that typically run into the thousands of dollars annually.

Peck says because they must use a larger portion of their income to pay for the mortgage and associated costs, the spouse who gets the house in a divorce often winds up making smaller contributions to a retirement account, which can be a long-term negative.

"The person who is going to keep the house for the children's sake deserves to be compensated for keeping the house for a longer period of time," says Peck.

Additionally, in today's real estate market, property values aren't appreciating like they did five years ago -- indeed, in some markets, values have the potential to fall again in the near future. "Whomever gets the house may actually be getting a financial burden," Peck warns.

5. Determine How Child Care Will Affect You Financially: Whether it's paying for babysitters, day care or expenses for child visits, you're likely to face new costs that you've never had to budget for before. Arranging for help to care for small children in the home is a sizable expense that you don't want to leave out of settlement negotiations. It may also be necessary to add to your financial outlay during the negotiations the cost of additional food, clothing and other items needed to raise a child properly.

Being the custodial parent for a child can also have an indirect affect on salary increases and career advancement. Working late frequently or constant traveling for the job to earn a promotion may not be possible if you have to take care of a small child at home. Determining how you'll deal with those situations and the cost for appropriate help to care for your child will also need to be factored into your overall expenses.