Divorce requires a ton of paperwork. As a divorce attorney, I find that many of my clients have a really hard time getting their financial information together. If you tell me you need support, I’m going to give you a homework assignment. I’ve developed a few easy steps to help you organize your finances in a way that will help your attorney get your support figured out so you can get your case done faster.
Step 1. Gather Information
Grab your bank statements. If your income and your expenses vary a lot from month to month (e.g. a spouse earns on commission that might be high one month and low the next, or you had a lot of medical expenses in a short period of time) then you will need a year’s worth of bank statements. If your income and expenses are pretty much the same each month, you only need one or two bank statements.
Grab your credit card bills. If you use credit cards to pay for expenses, grab the same number of credit card statements as you have bank statements.
Grab your receipts. To pick up the expenses you pay by cash, an easy trick is get a receipt for EVERY transaction (yes, even that cup of coffee from the drive thru) for just one full week. This would be a major hassle to do for a whole month, but for just one little ol’ week, you can do it. This will give you an idea of how much you are spending with cash.
Tip: You don’t need to collect receipts for purchases made by credit or debit card – those you will get from the statements.
Grab last year’s tax return. You want to start with your personal tax return. If you or your spouse are self-employed, you can also grab the business returns but if you aren’t experienced at looking at them, it might be difficult for you to get meaningful information from a business return. I recommend starting with the personal tax return to get an overview.
Step 2. Add Up The Income
If your household income varies, add up all the deposits for a whole year and divide by 12 months to get an idea of what the monthly income is. If the household income is pretty much the same each month, you should be able to determine the monthly income from just a few bank statements. Sometimes a pay period can hit your bank on a slightly different schedule, by looking at a couple of months of bank statements you should be able to add up the deposits on two or three months and divide by the number of bank statements you are using (for example, if you added up the deposits from three months’ worth of statements , divide by three to get the average monthly income).
Check your work by looking at the income tax return. Remember that the bank deposits will be net income (after payroll deductions, including taxes, social security, health insurance, retirement, etc.) and the tax return will show gross income (the amount of salary before any payroll deductions are taken), so you will need to subtract the taxes, health insurance payments, etc. to make sure you aren’t comparing apples to oranges. If the numbers on the tax return are wildly different from what you are seeing being deposited in the bank, it’s time have your attorney or your accountant step in and make sure that you don’t need to do more investigation.
Step 3. Find Out What You Are Spending
Your attorney or the court might have given you a form with categories for rent/mortgage, food, utilities, etc. If you are working to fill out one of those forms, divide up your receipts among the categories. If you just need an idea of your total expenses, you don’t need to divide the receipts into categories – just add them all and multiply by 4 (the number of weeks in a month).
Do the same thing for your bank statements (checks, debit card purchases, etc.) and your credit card statements. If you are asked to divide it into categories, go through each statement and write a letter representing that category (m = mortgage; f= food; u= utilities, you get the idea, right?). Now go back and add up each category. As discussed above, if your expenses are pretty much the same every month, you only need to do this for one month. If you had some big expenses that happened just one or two times during the year, add it up for the whole year and divide by 12.
For example, if you had surgery and ended up with a $5,000 bill in March and for the rest of the year you just had co-pays here and there – add ALL the medical expenses and divide by 12 to figure out your average monthly expense for medical expenses.
Bonus Step. Treat Yourself
Digging into your finances is not only a pain in the butt but it can also trigger your fears about whether you will be okay after your divorce. Plan to treat yourself to a glass of wine, a bubble bath or a big, fat chocolate chip cookie once you get through this task. Know that the first step to having a strong financial future is to give your attorney the information he/she needs to get started. Doing the calculations above will not only get your support sorted out faster, it will save you money since you won’t be charged for the paralegal or attorney having to do these calculations for you.
When you are trying to figure out how you will get to the safe financial future that you want for you and your kids, the first thing you have to do is find out where you are now. With divorce, like so many things, “the only way out is through” – to get done with your divorce faster, take these simple action steps and you’ll be ahead of the game.