An individual’s Social Security Statement can be a valuable resource in your divorce financial planning. Make sure to gather copies of the most recent statements available and we can help you uncover a wealth of financial knowledge.
1. Earnings and employment history.
The Social Security Statement is a great place to look for historical employment earnings. It is valuable to understand the earnings history and trajectory of both parties in a divorce. If tax returns and other documentation are being with-held by your spouse the Social Security statement can provide a valuable baseline.
2. Estimated retirement and disability benefits for long term, post divorce financial planning purposes.
Understanding the long term cash flow is very important when negotiating a financial settlement. Having details of the Social Security administration’s estimated benefits can help me understand your future cash flow and plan more effectively for the future.
3. If there is a public pension.
A worker who participates in California State Teacher’s Retirement System (STRS), California Public Employees Retirement System (PERS) and many other governmental retirement systems may not have paid into the Social Security system. Some may pay into Medicare but not Social Security. You can see this if the worker’s statement has wages in the Medicare taxed earnings column but not the Social Security column. Using the Social Security statement we can uncover the existence of a previously undisclosed pension.
4. Derivative benefits available to a former spouse.
In a marriage over ten years you can receive derivative benefits on the record of your former spouse. The derivative benefit is equal to one half of the former spouse’s benefit which can be found on their annual statement. This is useful for long term planning and can be important in long term spousal support negotiations.
5. Social Security and Medicare tax details.
We often need to estimate incomes for negotiation purposes. A common mistake occurs when the 6.2% Social Security tax is applied to the worker’s entire income. Instead the tax should be applied up to the maximum wage base for Social Security taxes. If you apply the tax to $300,000 of income the net, after tax income will be understated by over $10,000 per year.
6. Possible application of Government Pension Offset Provision (GPO) or Windfall Elimination Provision (WEP).
Those workers mentioned in #3 above may find themselves subject to the GPO or WEP and end up receiving less benefits than they expected if not careful. It is always important to understand how these government provisions affect an individual in divorce. The Social Security Statement even talks about them in the bottom right hand corner of page 2 in it’s current lay-out.
7. Existence of tax deferral vehicles such as deferred compensation plans and retirement accounts.
If the numbers reported under Medicare wages don’t match those reported in the Social Security earnings column there may be tax deferral vehicles like deferred compensation plans that are being used. The worker may also have simply hit the wage base maximum after which Social Security taxes are no longer incurred but Medicare taxes are.
8. Misreported income.
In California an individual involved in divorce proceedings must file a declaration of disclosure detailing their income and expenses and sign it for accuracy under penalty of perjury. This doesn’t keep people from reporting incorrect figures. If the Social Security Statement doesn’t match what is reported on the declaration there better be an explanation.
The Social Security Administration is provides an online version of taxpayers’ statements. The online version is now available at www.socialsecurity.gov/mystatement.
Your Wellspring Divorce advisor can uncover a lot from simple and easily available documentation. Imagine what we can find with a complete and accurate set of financial documents.
Spousal Support IS Modifiable
/in California Divorce Dictionary, Divorce Financial Planning, High Net Worth Divorce, Post Divorce Financial Planning /by Justin ReckersCan Spousal Support be Changed?
YES! The amount and duration of Spousal Support may be modifiable. You can go to court and ask the judge to increase, decrease, or stop spousal support any time during the period when court has jurisdiction unless you agree otherwise in your settlement.
In most states the court will retain jurisdiction over spousal support for different periods of time based on factors in the case. The main factors include:
Here’s an example.
A couple in their mid 50’s who has been married for 25 years with one party having been a full time parent would likely see the court retain jurisdiction over modification of spousal support forever in California. The length of marriage and ages of the parties would likely classify the example as a long-term marriage.
The working and paying spouse would be allowed to retire at normal retirement age, 65 or 67 depending on who you ask, at which point the amount of support could be modified to reflect the decreased income of the payer. If the payer continues to work past their normal retirement age they may be required to continue paying support at the same level. This has become more common as many baby boomers work past normal retirement age. Laws vary from state to state so be sure to consult experts in your home state.
During the court’s jurisdiction either party may petition the court for a modification based on a change of circumstances. A change of circumstances may include:
What other life changes apply?
It can also go the other direction where a payer has a large increase in income, a one time financial windfall through bonus or stock compensation. In this case the payee could seek to modify the support amount upwards. We often work with the payee spouse to determine whether they should seek an upwards modification of support. In order to do so we may ask for the payer to provide annual income disclosures so we can be aware of any factors suggesting an upwards modification may be appropriate.
In some cases it makes sense for the parties to agree to a non-modifiable spousal support order. This so called non-modifiable spousal support can stipulate duration of the payment and or dollar amount or both. Non-modifiable spousal support comes with risks and rewards for both the payer and the recipient but can make sense for both parties in the right circumstances.
Some cases build modifications into the original agreement corresponding with the recipient reentering the work force or some change in financial circumstances in the future. These are often called step down orders.
Spousal Support After Remarriage
/in Divorce Financial Planning, Post Divorce Financial Planning /by Justin ReckersWill I receive spousal support after remarriage?
It may depend on who is getting remarried. The payer or the recipient?
The remarriage of the payer has no affect on spousal support orders. Most divorce settlements do terminate spousal support after remarriage of the recipient. This is not a legal requirement just an assumption made in most cases and the family law code of many states. Some states even see co-habitation with a member of the opposite sex as grounds for modification of spousal support.
Get the facts.
Make sure you understand the financial ramifications of your new romantic interest before you dive into a new marriage. It is not abnormal for recipients of spousal support to postpone remarriage in order to maintain their spousal support payments. If you are still negotiating your divorce settlement but have designs on getting remarried soon here are some thoughts.
How Wellspring Divorce Advisors can help.
We have helped clients negotiate settlements to continue spousal support after remarriage of the recipient. Circumstances of the family financial picture or the health of the recipient party may support such a settlement. Like any negotiation each possible outcome comes with risks, rewards, costs and benefits. Wellspring Divorce Advisors can help you understand each angle and see if your circumstances may warrant continuing spousal support after remarriage.
Here are some examples of settlements we have helped craft.
1.The recipient party is permanently disabled and unable to earn a living for themselves.
In this case the recipient’s remarriage may have no effect on their financial circumstances due to their need for constant medical care. It may also be the payer simply wants to be sure their former spouse can live in comfort regardless of their circumstances and wishes to provide the minimum necessary to support medical expenses even after the recipient’s remarriage.
2. A non-modifiable order has been negotiated based upon other financial factors in the case.
Non-modifiable spousal support orders will include either a specified duration or dollar amount for the support payments regardless of other circumstances. For example if you negotiate a non-modifiable support duration of 10 years and get remarried in year 5 the spousal support would continue after the recipient’s marriage.
3. Some parties negotiate spousal support by agreeing to a total amount to be paid over the life of the order then work backward to determine the amount and duration.
In other words $1,000,000 over ten years which results in $8,333 per month for the life of the payment. Usually these types of settlements assume the continuance of spousal support after remarriage of the recipient in order to complete the full payment of the agreed upon $1,000,000.
If you are the payer the IRS makes one important distinction with regards to the termination of spousal support. Spousal support, alimony in their language, must terminate upon the death of the recipient for it to be tax deductible to the payer. They do not, to our knowledge, consider remarriage of the recipient to jeopardize the deductibility of the spousal support payments.
Social Security Statement in Divorce Financial Planning?
/in Divorce Financial Planning, Lists Worth Knowing /by Justin ReckersAn individual’s Social Security Statement can be a valuable resource in your divorce financial planning. Make sure to gather copies of the most recent statements available and we can help you uncover a wealth of financial knowledge.
1. Earnings and employment history.
The Social Security Statement is a great place to look for historical employment earnings. It is valuable to understand the earnings history and trajectory of both parties in a divorce. If tax returns and other documentation are being with-held by your spouse the Social Security statement can provide a valuable baseline.
2. Estimated retirement and disability benefits for long term, post divorce financial planning purposes.
Understanding the long term cash flow is very important when negotiating a financial settlement. Having details of the Social Security administration’s estimated benefits can help me understand your future cash flow and plan more effectively for the future.
3. If there is a public pension.
A worker who participates in California State Teacher’s Retirement System (STRS), California Public Employees Retirement System (PERS) and many other governmental retirement systems may not have paid into the Social Security system. Some may pay into Medicare but not Social Security. You can see this if the worker’s statement has wages in the Medicare taxed earnings column but not the Social Security column. Using the Social Security statement we can uncover the existence of a previously undisclosed pension.
4. Derivative benefits available to a former spouse.
In a marriage over ten years you can receive derivative benefits on the record of your former spouse. The derivative benefit is equal to one half of the former spouse’s benefit which can be found on their annual statement. This is useful for long term planning and can be important in long term spousal support negotiations.
5. Social Security and Medicare tax details.
We often need to estimate incomes for negotiation purposes. A common mistake occurs when the 6.2% Social Security tax is applied to the worker’s entire income. Instead the tax should be applied up to the maximum wage base for Social Security taxes. If you apply the tax to $300,000 of income the net, after tax income will be understated by over $10,000 per year.
6. Possible application of Government Pension Offset Provision (GPO) or Windfall Elimination Provision (WEP).
Those workers mentioned in #3 above may find themselves subject to the GPO or WEP and end up receiving less benefits than they expected if not careful. It is always important to understand how these government provisions affect an individual in divorce. The Social Security Statement even talks about them in the bottom right hand corner of page 2 in it’s current lay-out.
7. Existence of tax deferral vehicles such as deferred compensation plans and retirement accounts.
If the numbers reported under Medicare wages don’t match those reported in the Social Security earnings column there may be tax deferral vehicles like deferred compensation plans that are being used. The worker may also have simply hit the wage base maximum after which Social Security taxes are no longer incurred but Medicare taxes are.
8. Misreported income.
In California an individual involved in divorce proceedings must file a declaration of disclosure detailing their income and expenses and sign it for accuracy under penalty of perjury. This doesn’t keep people from reporting incorrect figures. If the Social Security Statement doesn’t match what is reported on the declaration there better be an explanation.
The Social Security Administration is provides an online version of taxpayers’ statements. The online version is now available at www.socialsecurity.gov/mystatement.
Your Wellspring Divorce advisor can uncover a lot from simple and easily available documentation. Imagine what we can find with a complete and accurate set of financial documents.
First meeting with divorce attorney: How can I prepare?
/in Divorce Financial Planning, Lists Worth Knowing /by Justin ReckersYou can save a lot of money on attorney fees if you are organized and provide your divorce attorney with concise and complete information. Here are some tips on how to prepare for your first meeting with divorce attorney.
Be prepared to discuss your marital problems with your divorce attorney but keep it concise and honest.
An idea of what you want to get out of the divorce proceedings financially.
You should bring the following information to your first meeting:
We suggest meeting with a Wellspring Divorce Advisor before or immediately after your first meeting with divorce attorney. We will help you put together a complete and detailed picture of your family finances before the attorney heads down the path of expensive formal discovery. We can also help you choose the right attorney and divorce process if you do not yet have one.
Dependency Exemption Non-Custodial Parents
/in Divorce Financial Planning, Post Divorce Financial Planning /by Justin ReckersThe Internal Revenue Service released a memorandum in 2009, clarifying the rules governing non-custodial parent’s ability to claim a dependency exemption for their child.
Previously, the Service allowed a non-custodial parent to claim an exemption for a child if the custodial parent signed a written declaration releasing claim to the exemption and the non-custodial parent attached that declaration to their return. IRS Form 8332 is available to document this release. In Publication 501, Exemptions, Standard Deduction, and Filing Information, the Service has stated that a non-custodial parent may attach certain pages of a divorce decree or separation agreement, instead of Form 8332, if the attached pages include the information required on the form. Click here for more information from the IRS.
The Problem
A problem arose in the ambiguous language of the actual code. It stated the release of a claim must be on Form 8332 or, if not on such form, must “conform to the substance of such form.” The ambiguity begat creativity and family law attorneys began drafting the declarations into settlement agreements. Taxpayers would then simply need to attach a copy of their divorce decree. This eliminated the need for Form 8332 and therefore, the need to speak to your ex-spouse every year requesting a signature.
The recent memorandum was directed specifically at the question whether it was allowable for a non-custodial parent to prove their right to the exemption by submitting proof of satisfaction of a condition in a divorce decree. The condition was that the non-custodial parent may only claim the exemption if current in his or her support obligation. This raises the problem of substantiation.
In the 2009 memo, the Service concluded the release must be on Form 8332 or must be a document conforming to the substance of Form 8332 and has as its only purpose the release of a claim to exemption. A divorce decree, separation agreement or parenting plan allowing a non-custodial parent to claim an exemption for a child, only if a condition is met, does not conform to the substance of Form 8332. For tax years beginning after July 2, 2008, a settlement agreement, decree or judgment may not be used by a non-custodial parent to substantiate a dependency exemption for a child.
These regulations reflect the Service’s concern about substantiating a claim to a dependency exemption for a child and are intended to avoid problems of proof, minimize controversy, and minimize costs to parents. The change does not preclude a non-custodial parent from claiming the exemption; it simply requires more care be made to make sure this is accomplished.
It may be helpful to include language stipulating the custodial parent will execute Form 8332 on a yearly basis. This follow up challenge can be alleviated by insuring the newly single parents consult a financial advisor with specific experience in the field of divorce financial planning. Two parents claiming an exemption for the same child will end in IRS audits for both and possibly bring a settled case back into the courtroom.