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161542267I teach a cash flow planning course throughout the metro area. One of the ways I begin, is by asking everyone to tell me the first word that comes to mind when they hear the word budget? Often it is a negative type of word like restricting, confining, or boring. When I ask a similar question about cash flow, common responses are future and choice. The chart below illustrates some of those differences. Pic   Money is one of those issues often cited as a reason for divorce. I would offer that money itself does not cause divorce. How spouses handle money differently and an inability to recognize their different money personalities and learn effective ways to work through those differences can lead to divorce or at least cause significant strain in a marriage. Establishing reasonable and necessary future living expenses post-divorce is one of the two pillars of any divorce process. Both spouses will need to establish their own living expenses independently of one another. If money was a source of conflict in the marriage, imagine the conflict that exists during the divorce process. The reality is the money conflict can and often does escalate in divorce. In my work as a financial neutral, financial mediator, and financial planner, I work with you and your spouse to help you focus on your future. One approach to creating a future oriented cash flow plan for your post-divorce life is to add up all of your expenses necessary for your basic living needs. This would include things like housing, food, clothing, and medical care to name a few. If you are familiar with Maslow’s hierarchy of needs, this would be the lower level (safety and security) in the hierarchy. Keep in mind that at this basic level food does not include dining out. Clothing does not include upscale designer clothing. Items in this safety and security level are for basic needs. After taking care of basic needs you can then address expenses that you have total control and choice over such as dining out, entertainment, cash spending money, gifts, personal care, etc. Finally, you may want to consider future goals and needs like retirement, creating an emergency savings plan, a different automobile, or an education. Think of separating these expenses into three different categories. I ask my clients to visualize these as three distinct buckets. The buckets are one for basic needs, two control and choices, and three future needs and wants. It is important to recognize that during and after the divorce, you may need to at least temporarily forgo some if not all of the future needs and wants, and substantially minimize the control and choice buckets due to the initial financial strain of divorce. It is equally important to recognize this time-period does not necessarily last forever. Incomes can and do increase over time and some expenses such as child-care reduce and ultimately disappear at some point. A well-developed future oriented cash flow plan can give you the peace of mind to know you will be financially secure. It can give you the opportunity to choose what is important to you about money, prioritize your goals, and create a solid model and roadmap for your life ahead. A financial neutral in collaborative divorce process will help you create this type of plan. A short three-minute video on the history of cash flow and money management is available by clicking here.  
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After your divorce, getting along at the holidays can be a stressful situation when you have kids. On top of trying to work out holiday visitation schedules and travel plans, you may also be worrying about what to get your kids. You might not have the resources to buy things like you did before the divorce. Maybe you have the resources and your ex doesn’t or vice-versa. So what do you do about those big-ticket items that your children have been eying since September? Being divorced brings on divisions over gift giving. Set aside some time with you ex, meet for coffee and talk about what your child wants or would like as gifts, and divide up the list, so you’re not duplicating each other and know what the other is buying. Also discuss whether or not a gift will be left at one parent’s house or if it can travel back and forth. If you have a hard time sitting down and talking in person, do it by email or phone. Sometimes it’s easy to ignore or “cross that bridge when we get there” but setting gift giving boundaries ahead of time creates less drama later on. It’s all too easy for the holidays to become a competition, to see which parent can buy the most stuff, the best stuff, or the most expensive stuff. Even parents that are great at co-parenting can fall victim to this game. You and your ex have to make sure this doesn’t happen to you and your child(ren). That behavior takes the focus of the holiday away from your child and spending time together. If one of you buys your child a puppy, a new video gaming system, and a big-screen TV and the other buys a few toys, feelings are likely to be hurt. The spouse who buys the big gifts often does not realize he or she is hurting the other parent and thinks they are simply making the child happy. However, if you’re the spouse who doesn’t splurge, you might end up feeling like you’ve failed your child or she will love the other parent more. Avoid this situation but having that gift giving conversation ahead of time; set a dollar limit or range if you need to. Holidays are hard. It’s important to remember the reason for the season, no matter what holiday you are celebrating. Try to focus yourself and your child on the fact that the holidays are not all about gifts. Spend time together doing holiday crafts, going to services, going to a concert, decorating your home, or baking. Check into age appropriate volunteer opportunities at a local shelters to serve meals to the homeless, packing shoe boxes for children overseas, or volunteer to wrap presents for needy children. Take your child shopping to buy a small gift to give the other parent. 20 years from now your child won’t remember which parent bought them the most gifts, so use this opportunity to show your child that giving back to others is more rewarding than receiving gifts – a life lesson they will remember for years to come.
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81897035The holiday season is upon us with all of its beauty, tradition and unreal expectations. It can be a stressful time for even the most grounded person. For someone newly divorced and still sorting out their new life, the challenges that the holiday season imposes can add a whole new level of stress if one doesn’t meet those challenges head on. It’s the financial impact of the holidays that we want to address today. Buying presents, decorating and entertaining can put a big hole in your budget if you are not careful. It can turn out to be a holiday hangover that lasts until summer. Meet the holiday spending challenge head on by getting a grasp on how much you can reasonably spend above and beyond your normal day-to-day spending. Follow that up with a holiday spending worksheet listing all the added expenses, including presents, cards, decorations, groceries, clothing, charitable donations, travel and dining out. Divide up your holiday spending dollars amongst the items on your list.  Now, prioritize your spending by putting the most important holiday items at the top of your spending list. Focus on purchasing the high priority items first. If high priority items, like presents or travel expenses, end up costing more than you budgeted, you will need to cut back on the low priority items. When it comes to presents, the holidays call for cooperation rather than competition. Trying to outdo your ex-spouse, particularly with the presents, is only going to add to the holiday stress. Share with your ex-spouse what you intend to buy and the things you know your child wants. Since it is likely that your child is going to celebrate Christmas twice, each spouse might want to agree to buy smaller items. If your child just has to have a really expensive item, considers splitting the cost. This is your opportunity to make new traditions. Look for ways to celebrate the holidays that focus on togetherness rather spending. Making cookies and homemade decorations, or helping out a charity, can all be done for minimal cost while instilling what the spirit of the season is really about. Avoid the holiday blues by approaching them with the right attitude. Look on the bright side, now is your chance to get rid of those awful holiday traditions of your ex-spouse. Here is your chance to start new traditions that truly reflect what you value and what you want your family to remember for years to come.
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155350102This time of year, it is often important to consider the tax implications of filing for divorce. In both federal and state taxes in Minnesota, you cannot file jointly if you are divorced before the end of the year. If your divorce is finalized in 2014 (signed off by the Judge, not just filed), you are deemed divorced and can only file separate, individual returns. If you hold off and divorce in the beginning of 2015, you can still file jointly for 2014. Everyone’s financial situation is different. Whether or not it is financially beneficial to file jointly or separately in any given year varies with each couple. However, some things to consider regarding taxes include:
  • Spousal maintenance payments (deductible to the payer and income to the recipient)
  • Distribution of any investments or retirement distributions are often taxable
  • Property taxes and interest on mortgages may be shared or their benefit maximized with one or the other claiming the deductions
  • If filing separately, status of Head of Household or Single may impact the tax burden
  • How to utilize dependency exemptions
You should consult with your tax planner on the financial implications of divorce date. If you decide it is better to wait to divorce until 2015, you can still sign and finalize your decree this year – you should just hold off on filing it. The agreements are binding but you may be able to maximize your tax benefit. A good collaborative divorce attorney and financial neutral can assist in reviewing these implications as well.
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182470705Once you have created a budget and projected your expenses into the next 12 months, there are additional steps you can take on a daily and monthly basis to improve your cash flow. Remember your goal is positive cash flow that allows you to save money for short and long term goals such as remodeling your kitchen, taking an exotic vacation, helping your child with college and saving for retirement. Add these ideas to your list of budgeting for a new life: Pay yourself first. Too many people make the mistake of saving if they have money left over at the end of the month.  By setting up a pre-determined amount of savings that is automatically transferred from your checking account each month, the money will be out of sight and you will enjoy the results of savings growth. If you receive your payroll electronically, your employer may agree to deposit a pre-determined portion of your payroll right into your savings account, too. Give yourself a cash allowance. Oddly enough, if you have a set amount of cash to spend on lunches or small purchases for each week, it’s harder to spend it. Try it! Use shopping lists. Avoid spending money on things you don’t need by planning your shopping trip with a list. Shopping will be faster and you’ll spend less if you stick to the list. Make sure that the items on your list are also part of your budget! Distinguish between wants and needs. Paying down debt and saving money are needs. Buying cool leather boots or a new tool set might be wants. To be sure, wait a day or two before buying them and see if it’s keeping you awake at night. If it isn’t, it’s a want you can do without — at least for now. Pay down high-interest credit cards. Finance charges on credit cards can quickly devour any savings you’ve managed to achieve elsewhere in your budget. Pay more than the monthly minimum or negotiate a debt payment plan to pay down high-interest cards. And, once you pay them off, follow these tips so that you charge only what you can pay off each month. You’ll have more money to save or spend on wants as well as needs! With these tips and others (like enlisting the help of a Certified Financial Planner® professional), you will keep track of your budget, be accountable and anticipate a financially secure future! You could even model a thing or two to your kids and friends!