This chapter from Divorce Strategy was excerpted in all of the Fall 1998 U.S. editions of Divorce Magazine. The article is titled Charting Your Expenses in the Money Matters section.
How Much Does It All Cost?
Your cost to maintain an established lifestyle consists of all the expenses you pay from all your income sources, including loans. In a divorce you will hear the phrases “maintain a lifestyle to which your family is accustomed” and “reasonable needs”. There is 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.
Webster’s Dictionary defines lifestyle as the “consistent, integrated way of life of an individual as typified by his manner, attitudes, possessions, etc.”. Reasonable needs are those things necessary to sustain a family with the basic requirements. The qualifier “reasonable” adds the limitations of not excessive, extreme or immoderate. Your family’s lifestyle and reasonable needs are the twocomponents 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 do not satisfy either spouse’s expenses to maintain previous lifestyles or the family’s current reasonable needs. This may lead to each ex-spouse being angry or bitter. These feelings are a result of each 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 all the family 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.
Software for financial record keeping is very helpful if you have a computer. A manual system takes longer to put together, but can be just as effective. For the manual system you need a 14 columnar pad, an adding machine or calculator, a good eraser and pencils. Use the worksheets at the end of this chapter as guidelines for setting up your own worksheets on separate sheets of paper.
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. If you use a debit card to buy groceries and get cash back, note the amount of cash you received. Also, be sure you do not include the cash you received as a part of your food expense. Enter your current daily expenses under the proper categories into your 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. Write that number in the proper space for each category expense for the month listed in your annual worksheet.
Continue keeping track of your daily and monthly expenses, transferring your monthly totals into a yearly worksheet listing your categories of expenses paid in that month. Total each month’s expenses and total each category for all the months you have entered data. Add all the month’s totals and divide by the number of months to get an average monthly total for each expense.
Organizing Your Records
Another example is credit card charges made to a child’s clothing store. This is a clothing expense and the children benefit from the purchase. List the expense under the clothing category for the children. The next step is to review each canceled check, paid bill or receipt and credit card statement to categorize all the transactions. At the same time you are categorizing the expense, record it into your system. Use the model worksheets on pages 165, 166, 168 and 169 to set up your recording system. Examples of some category listings are on pages 167 and 170.
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 do not 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. Be sure to make an adjustment deducting the amount you carried over from the previous month when you make an entry in the following month. You want to list only the unpaid balance for the new charges each month to avoid a double entry for any balance carried over from a prior month or billing cycle. In some instances, the payment you make on the balance owed may be a monthly expense. Do not 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 or music lessons. Some indirect expenses are: rent, mortgage payment, utility bills, automobile loan payment or insurance. In some cases, a payment of automobile insurance can be a direct expense if it is paid for a teenager to drive a car. 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.