Not going broke after divorce is up to you whether you were involved in managing the finances or not; but if the finances go without review, it is almost destined to be a catastrophe.
I think that everyone can agree on one thing. Divorce is an emotional, financial and social burden integrated into the lives of those that cannot seem to resolve irreconcilable differences in their marriage. Now that a divorce has been filed they have to reconcile their marital finances.
For whatever reason love was dissipated or destroyed and the homework of reviewing every bill with or without emotions is required homework. So what’s next? The financial breakdown is next. The breakdown of everything that was purchased together. The breakdown of finances gets pushed into the red.
Each area of divorce must be dealt with like a detective on a crime scene, but the finances have to be reviewed like an auditor auditing the United States Congress. What if you weren’t involved in any of the finances during your marriage? Now you have to act like a Certified Public Accountant to assure yourself that you don’t fall through the cracks financially once the divorce is final.
You will need a computer, MS Excel and crossed fingers. This will be diligent work for anyone having to decipher household finance but it has to be done.
Below are 3 tips for making sense of it all:
1. Total Household Expenses:
These costs will be all of the costs paid by you and your husband. In MS Excel there are “Cells”, i.e., A1, B9, etc. These cells accept alpha and numeric data. Enter in “Income” in cell A5. In cell A6, enter “your name + income” and in “A7”, enter husband’s name. In cell “A10”, enter “Expense”, and then list every name of the expenses paid by you and your husband for the month down the spreadsheet. In column “B”, enter the amount next to each name in column “A”. There is a summation symbol option to find out the total of all monthly income and expense. The subtraction of Expenses from Income will provide you with the amount of money leftover or cashflow for the month, also called Net Income when postive and net loss when negative.
2. Total household expenses paid by you:
Here we need to determine if you were paying most of the household bills or not. Using the same worksheet in Tip 1, in column “C”, enter only the amounts of income you received per month and the amount of expenses you paid monthly. In column “D”, type in “mandatory” next to the expense amounts required to be paid each month as it relates to column “B” and “C”. If you do not have an amount next to an expense that is mandatory for column “C”, enter that amount into column “E”. Now copy all of your monthly expenses from column “C” into “E” with the mandatory expenses to see what your responsibilities will be like when you move. This is a gauge of current bills or expenses based solely on your income. If there is a net income or positive cash flow that you can live with, then you may be okay. If there is a net loss or negative cash flow, then you will not be able to pay bills on time. You will have to borrow funds from savings, friends or family members. Or, if your marriage was a long-term marriage, one in which you gave up your career to raise the children and support your husaband in his career you can petition the court for alimony to help with those mandatory expenses.
Some expenses paid by the total household column, “B”, may not necessarily be paid by you in column “E”.
3. Your monthly living expenses:
This is the part that is going to sting. Take your net income in column “E” and multiply by 35% into column “F” using the formula “=E7*.35”. This is the total monthly amount that should be the ceiling for all of your monthly expenses in order to live comfortably without struggle. If the total expenses in column “E” exceeds the 35%, then you will need to reduce one or more expense items by calling the service provider and work out a new plan. Otherwise, shoot for eliminating the expense altogether. It does not have to be eliminated permenantly.
The meticulous exercise of calculating livable expenses is a chore but needed to assure survival on the other side. This is a good habit to always have. After completing this exercise then it’s time to breakdown assets and liabilities. You may be willing to sell all assets and split proceeds 50/50. If this is not the agreed upon approach, then back to MS Excel and documenting every asset and liability following the same tips, herein. Your personal net worth is determined by subtracting your liabilities from your assets.
Managing your finances is key to surviving the outcome of divorce or even life itself. Use MS Excel and be meticulous about every dime spent each month. If you can get pass the finance issues, then you may have chance to recover. It may be required to take another job, change career paths, or start your own business. The goal is to be better at managing finances and this is the first step to becoming a successful personal finance manager for your household.