How do I work out what my outgoings will be when I divorce or separate?
I am delighted to be joined by Alison Porter the Director and founder of Pennywise Consultants. Alison is a whiz at helping people work out what their outgoings will be once they are living separately from their spouse or civil partner following divorce.
JO: Alison this is a huge topic and one that many clients find really difficult to do. We ask our clients to imagine their future lives and work out what their income needs (outgoings) will be. Where should people start?
ALISON: First of all, many of our clients need to be encouraged to start at all! What do you think your cost of living will be for …the … rest … of … your … life? It is a huge and daunting question. For the majority of people faced with this hideous task, filling out this section lands on the ‘too difficult’ pile. I will never criticise anyone for procrastinating over this (my Will has been on my ‘too difficult’ pile for ages), but this section is so, so important. Essentially, it’s now or never. We are often talking about the difference between being able to manage and not being able to manage.
So, where should people start? My suggestion would be to do the most difficult bit first - the ‘committed spending’. The boring stuff. The council tax, utility bills, phone bills, house maintenance (houses cost a monstrous amount of money to look after). Start keeping a daily log of your spending, in a notebook or on your phone. Annotate your credit card and bank statements; you think you’ll remember what you bought in M&S three months later, but you won’t. Above all, don’t ignore anything. The little things add up – the Costa coffee, the snacks you buy, etc.
In your experience, Jo, what do you think are the most common obstacles facing someone preparing their future needs budget?
JO: You are so right about actually starting to get on and completing the proforma. Some clients have told me that they hate having to do them. It is a huge ask. It’s a bit impertinent, isn’t it, to ask that these things are thought about and, not only that, asking clients to project into the future? Most people don’t think very accurately about their current budgets and financial ambitions, much less their future ones. Do you think this inertia is to do with a general lack of financial awareness or is there something more?
ALISON: I think lack of financial awareness is definitely a factor, but I think there are a number of other things coming into play. Fear, depression, time, resentment at having to do such an onerous project when your life is being torn apart. It is also a very invasive exercise; people feel exposed.
We worked with a client who is a very senior accountancy professional, definitely not lacking in financial awareness, so she’d planned to tackle this task herself. But she was simply overwhelmed. She found starting divorce proceedings as a busy working mother of two was an anxiety-inducing task, and when she realised the huge volume of costs, information and bank accounts that needed to be evaluated for the budget she just didn’t have the time and couldn’t face doing it. That’s not an uncommon reaction, and entirely understandable.
In your book, ‘(Almost) Anything But Family Court’ you stress the importance of taking time and advice over the important financial decisions. Only this week, a friend told me that she had had no help with her future budgeting and that she now knows that she could have achieved a much better settlement if she had properly costed out her lifestyle.
As a lawyer and mediator, how much emphasis do you put on budgets (Income Needs Schedules) and how influential do you believe they are in the outcome of the divorce settlement?
JO: Budgets are crucial. We can’t work out what people need without accurate information. Sometimes, I need to say that seems very modest given the family’s overall income, is that right? I think that’s where someone like you would be vital to refer to.
Do you think everyone needs that extra help or just some? What do you charge?
ALISON: It is a popular myth that most people over-inflate their budgets, but this is not the case. Many clients don’t want to look greedy, or they simply do not know what life costs, so they under-estimate what they need. The most common scenario is that they under-estimate the ‘committed’ spending and over-estimate their personal spending. If they get it wrong, they are going to have to live with that decision forever, so if they are not sure, it is wise to get professionals like Pennywise to do it. If it were me, I would definitely use an impartial party so that both parties can be sure it’s realistic and fair.
There are of course people who can create an adequate budget themselves, but I haven’t met a couple yet where both parties have been fully cognisant of the family finances. This often leaves one person flailing and at a disadvantage. There are also very competent people who do not have the time or inclination; we did a budget for an accountant once!
Our prices start at £995 + VAT for our Standard budget. All our budgets are costed individually and a fixed price quotation submitted in advance, so no horrid surprises.
JO: Could you explain more about how you prepare an income needs (outgoings) schedule?
ALISON: Our budgets (income needs/outgoings) schedules are created with a combination of input from the client and our own research and data. We encourage clients to be involved because then they have a really good understanding of the budget. This is important in the event of cross-examination, but can also help the client to feel more confident and informed. The client will complete a comprehensive checklist with us and then we do the rest. Every single cost they could possibly incur will be included.
I should also add, that we welcome input from the legal adviser too and they also get a chance to add their penny’s worth.
JO: Thanks so much Alison – I look forward to working with you.
And here are Alison’s contact details:
T: +44 (0)1531 640988
M: +44 (0)7782 588931