Divorce and Family Finances
by Gary Foreman
Dear Dollar Stretcher,
Unfortunately, so many families are splitting that guidelines are needed for that form of family. When a family has split, what would be an equitable financial plan? How big a piece of the husband's income pie should go to the household occupied by two growing children with their mother, and how big a piece for him? Should he budget for enough bedrooms to accommodate his children if and when they visit? Or should he cut the biggest pieces of the income pie for his children and wife, under the theory that he can live in one room? What should his eating-out budget be if he has no kitchen and works 10 hours a day? What should the mother with children's food budget be if she does not have a job? How should the rent pie be cut? 60-40? 70-30? 50-50?
From the statistics, Mary's not the only one asking this question. For every 1,000 marriages, about 550 divorces take place. More than one million children are effected by the million-plus divorces each year. Based on those numbers, a lot of families are trying to answer this question. Before we start, let's agree on our goal. Divorce is a controversial topic for society generally and for those involved personally. We're not going to discuss that. Rather, we'll try to provide some information so that couples that are considering divorce can look at their budgets and have additional information to make a decision that's best for their situation. In an emotionally charged atmosphere, having real numbers to work with can be helpful.
Let's begin by considering what's involved in answering Mary's question. What she's really asking is how do you take a budget for a family of four and split it into separate budgets. One budget would be for the mother with two children. The other is for the father. How much income will it take to support the split family? We'll turn to The U.S. Statistical Abstract 1997 for some preliminary numbers. The "Average Annual Expenditures by Size" table tells us that the average four-person family spends $42,800 per year. It also says that the three-person family, on average, spends $37,856 and a single-person household averages $19,390. What's the point? If Mary's family is typical, they will go from spending $42,800 per year to $57,246. That's a 33% increase in spending. So unless their current combined budget is running a comfortable surplus, it will be necessary to either cut expenses or to increase income.
Can expenses be reduced below the average? Let's start with the husband's budget. Remember, we're looking to cover a shortfall of $14,000. Can we expect to save that much out of an annual expense of $19,000? Not unless we expect the husband to join the homeless. Suppose we expect the husband to pick up half of the savings. Is it possible for him to live on $12,390 per year? Probably not. He'd need to spend no more than $1,032 per month. If you assume $500 for an apartment, $150 for food ($5 per day) and $200 for transportation that leaves $182 for insurance, medical bills, clothing, entertainment, education and taxes. A pretty bare-bones existence by most standards and a challenging goal.
Let's look at Mary's side of the budget. Remember, she's used to living in a household that spends $42,800. We're already assuming that she'll reduce that to less than $38,000 when her husband moves out. Now we're looking for an additional $7,000.
To save that much money she's going to need to make some serious lifestyle changes. The first place to look in budget cutting is food and transportation. According to our averages the combined total for Mary is $13,080. It's not realistic to expect to save $7,000 there.
To save that much it will almost certainly mean that Mary will need to move to a less expensive residence. Remember, she's trying to save nearly $600 per month. If her current rent or house payment is $1500, she'll need to find something in the $900 range.
Eventually, Mary and her husband will need to go beyond the national averages we've used here. They'll both need to prepare a budget for their expected needs of after-divorce living. Dad will need to figure where the kids will sleep when they stay with him. Is a one-room apartment realistic? If he works ten hours a day it makes sense to assume that he won't be doing much food preparation. His grocery allocation needs to reflect that. He'll also need to make plans to cover the chores that Mary handled.
Mary's budget may need to include a more dependable car than she has. After all, there won't be a second car if the first one breaks down. If her husband did any home repair, she'll have to learn how to do it or add the cost of professional repair people.
If Mary doesn't work, becoming a real miser in the kitchen is essential. She may need to try to feed three on the same amount of money that her husband spends on take out dinners.
Some expenses just can't be cut in half. Two auto policies will be more expensive than one with a two-car discount. Both will need some type of homeowner's or renter's insurance. Utilities (water, phone, electric) will need to be paid on both residences. Don't forget changes in costs for medical and life insurance coverage. All of this needs to be budgeted separately and then combined to answer the question about splitting the money. Only then will you have a true picture of what the future will hold financially.
The most probable outcome is that the new expenses will exceed the old by a significant amount. In many cases the only answer is to work more to increase income. But, remember that additional hours at work will mean additional costs for day care, fast food, etc. Ultimately, only Mary and her husband can answer the question of who should bear the burden of supporting two households. Sacrifices will be required. Finding the money for a 33% increase in expenses will require concessions from both parties.
Studies frequently point to money problems as a major cause for divorce. If that's true, then divorce and the increased expenses that come with it might not be the solution that many couples are hoping to find. We'll leave the marital counseling to others. But, speaking from a family financial viewpoint, it's not an easy task to "split" a family budget without causing hardship. Anyone who attempts it will need financial facts to go with the emotions that come with divorce. Failure to plan now could turn a bad situation into a disaster for everyone. Thanks to Mary for an interesting question. We wish the best for her family.
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Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter or visit Gary Foreman on Google+. Gary is also available for audio, video or print interviews. For more info see his media page.