Chapter 8 – Historical Spending and Budgeting

Standard

As discussed in Chapter 2, the standard of living enjoyed by the spouses during a marriage is often one of the main factors in awarding spousal support and child support. One cannot determine the “reasonable need” of a spouse unless the actual expenses during the marriage are analyzed. The standard of living will be determined on the basis of historical expenditures, with some modifications or adjustments depending on local rules and/or the circumstances of the case.

It is important to know how your jurisdiction defines “during the marriage.” In some locales, this could include the time up to the date of divorce, whereas it only includes the period up to the separation in other places.

Detailing Expenditures
In Chapter 6, we discussed how bank, brokerage, and credit card statements can be used in divorce cases to quantify and evaluate expenditures. Chapter 7 discussed the analysis and tabulation of expenditures. Here we take the process a step further and see how the detail and summary records may look as the forensic accountant is working with them.

As discussed previously, there is no standard for the period of time that should be analyzed in order to determine the standard of living during the marriage. Often the analysis of expenditures will be for a period of one to five years. The key in selecting a period is determining whether it represents the spending during the recent years of marriage. The shorter the period analyzed, the more likely there will be unusual items of income or expense that may skew the results. However, analyzing a longer period increases the cost of the analysis.

Expenditures could be classified in hundreds of different ways. It is best to narrow down the categories, however. The financial expert must break the categories down far enough that the summed data is meaningful, but not so far that the number of categories is overwhelming.

Also included in this chapter:

Analyzing the Totals
Excluding Items from Marital Lifestyle
Preparing the Post-Divorce Budget

Insufficient Income or Assets