Managing Cash Flow After a Divorce

Stick to a Spending Plan

• Prepare a realistic post-divorce spending plan or budget based on your individual sources of income (including alimony and child support) and expenses.
• Be aware that an additional drain on the finances of a divorcing couple is legal fees. Initial retainers for each spouse can run from $2,500 to $5,000, with additional charges (sometimes well into five figures) if a case is complex or takes years to settle. Many lawyers charge $200 to $500 per hour and, as the saying goes, “time is money.”
• Be prepared to “downsize” from your previous lifestyle as part of a married couple by identifying household expenses that can be eliminated or reduced.
• Consider ways to increase your income, such as working a second job or starting a sideline business. You might also be eligible for public benefits (food stamps, for example) or tax breaks (the earned income tax credit, or EITC, for example) as a result of your change in financial status.
• Do not attempt to try to live beyond your means using payday loans or credit cards. Eventually, you will get in over your head and find it difficult to make the required payments.

Cover the Children

• Ask your attorney to include a cost of living adjustment for child support in your property settlement agreement. This will help maintain purchasing power with inflation as well as cover children’s additional expenses as they get older.
• The parent(s) paying child support should have adequate life and disability insurance so that payments will continue no matter what.
• Consider including a plan for saving and/or paying for children’s future college or vocational training expenses. While child support guidelines do not require expenses for post-high school expenses, an education for your children will greatly increase their future earning ability. The earlier parents start to accumulate assets for educational expenses, the easier it will be to save.