I am really excited to be working with Gemma Hope from Family Law Partners in a series of blogs discussing the financial aspects of divorce from a practical and emotional perspective. This series of blogs will help you to get financially organised and prepare for the separation and divorce process.
Are you someone who gets excited about the numbers, or does it fill you with dread?
Some people find the financial aspect of divorce really daunting. I have a number of clients who come along and ask me to help them create a budget, and who are often feeling anxious about the prospect, especially if they have not managed the money in the relationship before.
So let us start by thinking about the word “budget”, what does it mean?
What are your associations to the word budget? Responses in my practice have included “restriction”, “calculation”, “expenses”, “a plan”. If we reframe the word “budget” into “spending plan” or “cash flow”, this then brings about a different set of responses: “a spending plan helps me work towards my goals”, “a cash flow reminds me of the sea going in and out, sometimes it is quite rough and other times it is still like a mill pond”.
One of my clients, whom I shall call Jane, said:
“Everything changed for me when I created a spending plan rather than a budget, the idea of a budget dictates to me what I can spend on what (e.g. I can only spend £450 this month on food), but a spending plan allows me to decide what I spend each month, my expenses change each month and my spending plan allows this to happen”.
Why you need a spending plan
Creating a spending plan will help you feel organised and assist you in taking control of your financial future.
Gemma, why is it important in the divorce process to do a spending plan?
The law that governs the terms of a divorce financial settlement requires consideration to be given to income, earning capacity, property and other financial resources which each spouse has or is likely to have in the foreseeable future including, in the case of earning capacity, any increase in that capacity which would be in the opinion of the Court reasonable to expect a person to take steps to acquire. Financial needs, obligations and responsibilities which each spouse has or is likely to have in the foreseeable future also have to be taken into account.
Therefore when you separate from your spouse it is important to start thinking about what resources are available and from those available resources what you will need each month to be able to meet your outgoings.
As part of any divorce financial settlement consideration has to be given to whether there can be a clean break between the spouses. To achieve a clean break the court has to be satisfied that both spouses will be able to survive financially without the assistance of any spousal maintenance from the other. There is no automatic entitlement to spousal maintenance, it is only payable if one spouse needs support from the other to help them adjust to any undue hardship caused by the marriage coming to an end. Your respective incomes and outgoings therefore need to be analysed to ensure both your needs can be met. A spending plan is a key part of this analysis.
Unrealistic assumptions and unsustainable expectations about what is needed each month to cover outgoings can cause delay, worry and prevent a fair settlement being reached. Reviewing how much money you have coming in and how much you have going out each month will help you to start feeling more empowered and confident with regards to the decision making that will need to be undertaken to work out how the resources available can meet needs overall. Having a well thought out spending plan can enable you to realistically and rationally approach living separately and assist in working out the terms of an equitable and feasible divorce financial settlement.
It is inevitable that a divorce is likely to cause financial change. Change can be difficult for anyone even at the best of times. Having a clear spending plan can help such change feel more manageable.
When money feels difficult
However, having to create a spending plan can feel really overwhelming. The resources that have been available for one household now have to support two which often means significant adjustments to the standard of living you both may have been used to. This can be really upsetting, and it can be hard to start thinking about what you need going forwards.
Kim, do you have any top tips on how to help manage the emotional blockers that can make working out a spending plan so difficult?
Yes, here are some tips that will help you set about creating a spending plan. If this is your first time then don’t be surprised if you feel a whole host of emotions. People I work with describe feeling guilty, shameful, ignorant, angry and frustrated around money matters. These feelings are natural when we are asked to do something which is new or unfamiliar or when money is associated with feeling powerless or out of control. So before you begin the plan, take some time to have a think about your relationship to money. What was your first experience of money when you were a child? Do you like thinking about money questions or do you push them away? Are you a spender or a saver?
The spending plan will help you feel that things are more manageable and help you see where you can make changes to save money or work towards the goals and vision you have for your future life.
7 tips for creating a spending plan
To make this process easier, make sure you start by getting your free spending plan worksheet here. In this friendly document, we’ve included income and expense tables specifically for separation and divorce.
Then follow the steps:
1) Don’t panic! You may go into flight or fright mode, this means you may run away from the task or freeze and be unable to think. We are not born to know how to create a spending plan, we aren’t taught the skills at school and rarely even at college.
2) Break the task down into chunks. The first step is to work out your income, but before you do this, take some time to set the scene. Have you got uninterrupted time for at least an hour? Make yourself a hot drink, ensure your room is light and airy.
3) Make a note on a piece of paper or in a notebook of any income you receive, whether it is from paid employment, self-employment, rental income or any other source. Once you have done this then enter it onto the spending plan worksheet.
4) Now look at the expenses categories, do they fit your needs? Are there any you want to add or take out? Do they take into account your children’s needs?
5) Over the course of one, two or three months, track your spending. You can do this in various ways, either by hand in a notebook, using an Excel spreadsheet, using a banking app or downloading your bank statement into an Excel spreadsheet.
6) Work out which of your current expenses will stay the same and which will change in your new situation, for example, will your council tax stay the same if you are moving house? Will your gas and electric bills reduce if you are downsizing?
7) Review your spending plan every month for the first few months. The plan is a live project to be reviewed and refined. Use it to help you work towards your vision for the future. Do ask for help if you get stuck, there is no right or wrong way of building a spending plan.
To get started with your spending plan, remember you don’t have to start from scratch: you can use this free worksheet with income and expense templates.
You may also be interested in:
- Pensions and divorce – managing difficult emotions
- How Financial Coaching can support you before, during or after divorce
- Gemma Hope from Family Law Partners
If you feel you need support with your spending plan or financial matters, don’t hesitate to get in touch. You don’t have to do this alone.
By email: firstname.lastname@example.org
Call: 07711 102461