Families Change Guide to Separation & Divorce

2.13 - Taking Charge of Your Family’s Finances

2.13 - Taking Charge of Your Family’s Finances

Most of the time, after separation,  the standard of living for both people drops because the same  income now has to support two households instead of one.

With information and help, you can prepare yourself for your post-separation financial future. In this section, you are going to learn about 7 steps that you can take to get control of your finances.

1. Review your family’s overall financial picture

  • Summarize your financial life as it is at this moment.
  • Make a record of everything you own (assets) and everything that you owe (liabilities or debts).
  • Expect your income to drop after you separate.

2. Live by a budget

  • A budget, or spending plan, can help you balance expenses with income, and help you make good choices with your money.
  • With a budget, you :
    • Can increase  your chance of making payments on time;
    • Decide what  you can and cannot afford;
    • Increase savings for large or unexpected expenses;
    • Reduce impulse spending; and
    • Reduce debt.

A budget is a tool that puts you in control of your money to meet family needs and wants. It will show how much money you have, where it needs to go to meet your needs, and when you will be able to reach your goals. A budget puts you in control.

3. Decide if you can afford to keep the house

  • Keeping your home may be your preference, but it may not make financial sense.  
  • The equity in the house won't pay the bills. You may end up asset rich but income poor.
  • If it makes sense for one of you to keep the house, that person may want to pre-qualify for a mortgage before taking the other’s  name off the title to the house

4. Reduce discretionary spending

There are two types of expenses:  “discretionary” and “non-discretionary”.

Non-Discretionary Expenses are expenses you must pay, you have no choice. This includes: taxes, statutory deductions like union dues, child support, spousal or partner support, and medical insurance.

Discretionary Expenses are optional, you choose them. They include family expenses like food, housing, and clothing, as well as car insurance, activity fees, school expenses, entertainment, and travel. Things like food and shelter are not optional, but you choose what you eat and where you live. They are variable expenses.

  • After separation you may need to evaluate your expenses and make decisions about what you can and can’t afford.
  • Depending on your lifestyle, you may need to ask yourself:
    • Should I work or stay home?
    • How often can we eat out?
    • What extra school expenses are manageable?
    • How much entertainment can we afford?
  • There isn’t too much you can do about non-discretionary expenses - you have to pay them. But most expenses are discretionary expenses. They reflect the choices you make about your lifestyle, and that of your children.
  • To reduce discretionary spending:
    • Know what you spend your money on, and where you spend it.
    • Stop spending that increases debt. Pay cash for necessary items like food and shelter, but don’t buy any lifestyle products on credit.
    • If you don’t own it now, don’t buy it. 

5. Decrease your debt.

  • Do not use credit to postpone a crisis.
  • Do not use credit cards or credit lines for anything but essential expenses, and only for a short period of time.
  • Whenever possible, do not incur further debt.
  • Implement a plan to cancel joint accounts and pay out existing debt.

6. Start a program of saving instead of spending.

  • Not only do you have the benefit of eliminating waste (and have more money as a result), you can begin to focus on long-term goals instead of short-term spending.
  • A wise person once said: it’s not about how much money you make, it about how much you save.

7. Don’t procrastinate. Do it now!

  • The longer you have debt, the more interest you will pay.
  • It’s important to evaluate your expenses and make reasonable decisions about what you can and cannot afford.
  • Pay off what you can. Don’t buy what you can’t.
  • You don’t have to live in financial misery after separation if you can:
    • Negotiate a reasonable support agreement;
    • Negotiate a reasonable property settlement;
    • Adjust your spending patterns so that you don’t tap into your assets; and
    • Take responsibility for some of the financial issues. This may mean getting a job, changing jobs, or getting a second job.

The 7 steps that we just described are not easy. For a lot of people, it’s not easy getting control of their finances. For review, here’s the list one more time.

  1. Review your family’s overall financial picture
  2. Live by a budget
  3. Decide if you can afford to keep the house
  4. Reduce discretionary spending
  5. Decrease your debt
  6. Start a program of saving instead of spending and
  7. Don’t procrastinate. Do it now!