Cash Flow - Making Two Households Work Financially
An introduction to the cash flow analysis in divorce, focusing on income and expenses post-divorce and the ability of parties to support themselves (and children).
Alimony
Also known as spousal maintenance or spousal support, financial support paid by one spouse to the other, typically on a regular basis, post-divorce to fill the gap between the recipient’s income and need.
Cash Flow
The amount of cash being transferred into and out of a household during a specific period used to evaluate financial stability and the sustainability of a household moving forward post-divorce and determine if support is needed.
Child Support
Financial assistance provided by one parent to the other parent for the care and upbringing of the children post-divorce.
Household
All the people who occupy a house, apartment or other living space, typically parents and children, but may also include other full-time dependents in a home like an aging parent.
Spousal Maintenance
Also known as alimony or spousal support, financial support paid by one spouse to the other, typically on a regular basis, post-divorce to fill the gap between the recipient’s income and need.
Spousal Support
Also known as spousal maintenance or alimony, financial support paid by one spouse to the other, typically on a regular basis, post-divorce to fill the gap between the recipient’s income and need.
Cash flow in divorce is much like cash flow in a business: it is an analysis of money going into and out of a household. Think of a household as everyone who lives in your home. It might be just you or it could be you and your kids. Or maybe you are taking care of an aging parent – if so, your parent might be part of your household. In a divorce, you likely need to look at cash flow in each spouse’s household after the divorce. You are trying to figure out how to take your one household from during the marriage and split it into two financially independent households.
Cash Flow Overview - Key Considerations
Ultimately, you are trying to answer the question: Can you each support yourselves moving forward or do one of you need support from the other to make your cash flow work?
Understanding cash flow is essential for evaluating financial stability and the sustainability of a household moving forward post-divorce and determining if support is needed.
Cash Flow v. Property Division
Cash flow is different than property division. While property division looks at a snapshot in time and separates out all of your assets and liabilities, cash flow is a forward-focusing analysis that looks at how income and expenses will “flow” (or move in and out) of your household moving forward. It is not a static analysis. It is a fluid way of looking at how finances will be managed moving forward.
Understanding cash flow and making two households work financially can feel scary and worrisome. There are questions of fairness: Who makes more money? Who spends more? How have we spent in the past? And which expenses belong to whom? Truthfully, two houses almost always cost more than one – so this can be a tough analysis. Being methodical in your work and gathering all of the relevant information, by reviewing past spending or researching future costs, can make the analysis easier. The more effort you put into outlining the facts, the better your resolutions will be.
Cash Flow Process and Steps
Build a budget --> Review all income --> Determine whether support is needed --> If so, map out support numbers --> Finally, consider logistics of cash flow
- Build a Budget. The first step in managing cash flow is to have a clear, factual understanding of your current financial situation and expectations moving forward. This typically entails building a through, future-focused budget. This includes detailed information of all monthly expenses, including debt payments and expenses related to children if you have them. We will guide you in creating a comprehensive budget that reflects your true financial picture and anticipates the budget moving forward post-divorce. Accurate and thorough financial information is key to making informed decisions about alimony or spousal maintenance, child support, and your overall financial plan.
- Review all Income. Once you have established the financial need of your household, then you need to compare your monthly need to your monthly income.
- Determine Whether Support is Needed. Understanding what each of you earn or will earn moving forward allows you to answer the fundamental question – Do you make enough income to meet your reasonable budget? If you make enough, no support may be needed. If you or your spouse don’t make enough, then you will need to consider support.
- Consider Various Types of Support. If support is needed, there are three types of payments to explore - spousal support/spousal maintenance/alimony, child support (if you have kids), and/or direct payment of expenses. These types of support can be used separately or together to make both households work financially. The specific laws vary by jurisdiction and can be complex. Some states have calculators for support and some have more general guidelines. One of the most complicated legal elements is spousal support (also called “spousal maintenance” or “alimony”), which in most states has some discretionary elements to its calculation involving factors like the length of the marriage, the standard of living during the marriage, and each spouse's earning capacity.
- Determine Logistics of Support.
Beyond the factual data and legal frameworks, your personal comfort and financial goals should be considered. Considering what feels right to you empowers you to consider how you want your financial future to look. Whether it's achieving financial independence, ensuring stability for your children, or planning for long-term goals, your personal aspirations will guide the negotiation process. We encourage you to think creatively but also realistically about your post-divorce cash flow, aiming for solutions that feel right and sustainable for you.
In the following modules and supporting materials, you will find the tools and understanding necessary to make well-informed decisions setting the stage for a stable and sustainable financial future.
Assess your post divorce financial goals with this quiz.
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