Paying for College After Divorce: The truth about split finances

August 9, 2017/in Divorce Financial Planning /by Sandi Gumeson

The struggle is real.

It should come as no surprise that in most divorce cases, paying for college after divorce becomes a challenge for both parents. In fact, a study published by the Journal of Family Issues found that divorced parents contribute about one third of what married parents contribute.

The truth is, students with divorced parents face a greater burden in financing everything; from their first car to a college education to flowers for their prom date…usually finances aren’t what they were before. The reality is that there is often less to go around now that many expenses, like heating bills, are double the amount they were during marriage.

Children must also decide who they should hit up for the money when they need it. Do I ask Mom or Dad? (The really smart ones will ask Mom and Dad in the hope they can collect from both and double their take.)

Sometimes ignorance is bliss.

I was once contacted by a journalist “seeking a student with divorced or remarried parents to comment on how their parents’ marital status has affected their college education and finances during college.” The writer wanted to ask, “Did your parents’ divorce really cause them to contribute less to your education, whether directly or indirectly?”

The kid doesn’t know what they don’t know and it should stay that way. My hope is that all parents will let their kids know they are doing their best to help in every way they can and leave it at that. No child will benefit from knowing that Dad “can’t pay for all of tuition this year because he has to pay Mom Spousal Support.”

Should you even be paying for college???

My advice to all parents is to pay yourself first. Do not even consider paying your kid’s tuition until you have maxed out all available tax deferred retirement vehicles.

Why?

Your kids can get loans at fairly favorable terms and may even get scholarships and grants they will never have to pay back. No one will give you loans to pay for your retirement and you certainly aren’t going to be getting any scholarships to your local country club. For those who absolutely must limit the amount of work your child takes on (outside of being a student), please at least have them work during their summers off.

Need help figuring out college funding with your ex or soon-to-be-ex spouse? Wellspring Divorce Advisors are here to help answer your questions and get you on the right path! Contact us at jreckers@wellspringdivorce.com or 858-523-8249.

How do I figure out how to live on less money after the divorce?

July 31, 2017/in Divorce Financial Planning /by Sandi Gumeson

Finding ways to stretch the family dollar and live on less money is often the hardest part of life post divorce. Here is a place to start:

Create a budget with the goal of achieving the following results.

1. Detail all income and expenses

Determine your net disposable income from employment, support and any other sources.
Get your checkbook register, checking account statement and credit card receipts.
Categorize your expenses into home, food, entertainment, etc. on a monthly basis.
Create a separate budget for child related expenses
Categorize your expenses between Fixed and Discretionary.
Determine your Total Spending.

2. Create guidelines for your spending in each category.

Remember these are just guidelines. If you treat them like rules you may not feel like you’re making a positive change.

3. Create a snapshot of your financial world.

Compare your Net Disposable Income to your Total Spending.
Once you have the first snapshot of your income and expenses you can begin planning to make changes.
Decide what constitutes a realistic budget.
Click here to compare your children’s budget to the National Averages.
Determine your debt to income ratio by determining what percentage of your monthly income goes to paying debts. If it exceeds 28%; consider trying to reduce your debt load.
Discretionary expenses include entertainment and dining out and offer the best source of budget cuts.

4. Find where you can cut discretionary expenses.

Discretionary expenses include entertainment and dining out and offer the best source of budget cuts.

It will be helpful, even necessary for some, to work through this process with a Financial Planner. You are not alone in your dread for budgeting. Humans are built to think about surviving today at the expense of tomorrow.

Wellspring Divorce Advisors helps individuals and couples address the financial aspects of divorce in a civilized, equitable, and efficient manner by providing expert divorce financial planning and advice.

Contact us to find out how we can help you through this process.

Social Security Benefits and Divorce: What you need to know to plan for retirement

July 13, 2017/in Divorce Financial Planning /by Sandi Gumeson

Retirement planning is a big piece of the divorce puzzle. It’s important to know what Social Security benefits you’re entitled to so that you can plan for the future.

The history of Social Security benefits and Divorce

Social Security in the United States refers directly to a lesser known federal Old Age, Survivors and Disability Insurance program or OASDI.

The program was originally rolled out in the 1930s in an attempt to limit what were seen as dangers to the American way of life such as increased life expectancy, poverty, and fatherless children. So the Social Security Act, signed in 1935, created social insurance programs to provide benefits to retirees, the unemployed, and as well as a lump sum benefit to the family at death.

Many amendments have been made since the original Social Security Act of 1935. Most importantly, Medicare was added in 1965. The Social Security Act of 1965 also recognized for the first time that divorce was becoming a common cause for the end of marriages and added divorcees to the beneficiary list.

When Can I Collect Benefits?

The earliest age at which reduced benefits are payable is 62. The age at which full retirement benefits are available is dependent upon the taxpayers age. An increase of regular retirement age was enacted to reduce the amount of benefits payable.

For those currently over age 70 the normal age was 65. Anyone born after will fall somewhere on increasing scale which climbs incrementally to age 67 depending upon birth date. Anyone born after 1960 must reach age 67 for normal retirement benefits. Delaying receipt of benefits will increase a taxpayer’s benefit until age 70.

As A Divorced Spouse What Do I Get?

Divorced spouses are eligible for benefits equal to one half of the worker’s benefit if they were married for 10 years, have not remarried, and are at least 62 years old. This is called a derivative benefit. A spousal applicant must wait until the worker has reached retirement age, 62, in order to apply for benefits. The worker is not required to have applied for benefits in order for the ex-spouse to apply for spousal benefits. They are not entitled to increases for benefits taken after normal retirement age.

If a worker has died and the ex-spouse has reached full retirement age they can receive 100% of the worker’s benefit as survivor benefits.

What else do I need to know?

If an applicant is between age 62 and their normal retirement age; the application for benefits will be based on the applicant’s earnings record. If one half of an ex-spouse’s benefit is greater than the applicant’s benefit on their own record, the applicant can choose to take whichever is greater. If you wait until your normal retirement age and file for spousal benefits you can continue to accrue benefits and enhancements for delaying your own retirement up until your age 70.

An ex-spouse’s receipt of derivative benefits on the worker’s record does not reduce the worker’s benefits. It is even possible for more than one ex-spouse to collect on the worker’s derivative benefits. This could lead to as much as 500% of the original benefit being claimed by the five ex-spouses.

Contact us to find out how we can help you through this process.

All Your Friends Are Doing It: Is Divorce Contagious?

July 2, 2017/in Divorce Financial Planning /by Sandi Gumeson

Is divorce contagious?

A lot of us have experienced it or at least witnessed it in some way. One neighbor or co-worker decides to get divorced and the next thing you know you’re the last married couple on the block.

Or maybe you’re not.

The point is, one month you might think that everyone is happily married and the next, divorce is spreading around you like a virus.

This actually makes sense. Groups of couples often meet and become friends because the kids go to the same schools or have other things in common. Similar income and wealth levels are also a factor in most friendships. As children grow and begin leaving the nest, the urge to “stay together for the kids” gives way to “I must take care of my own happiness.”

A group of families can very easily find themselves in this position all at the same time. Once the first couple calls it quits the remaining members of the group get a glimpse into just how divorces happen and what life looks like on the other side.

Is the grass really greener?

Fear of the unknown is a big reason why some people hesitate to get divorced. Will I be able to maintain my lifestyle? Will I have to go back to work even though I’ve stayed home with the kids for years? How will this affect my retirement? What about the house? The kids? What will my family think?

However, as friends or family navigate the divorce process and transition to life after, the process might seem less daunting. The shared experience serves to remove ambiguity. Suddenly the divorce process itself and life as a single person seem less frightening and a Divorce Bubble pops.

Come on! Answer the question.

Because there is a study about everything for everything you might be interested in an academic paper titled: Breaking Up is Hard to Do, Unless Everyone Else is Doing it Too: Social Network Effects on Divorce in a Longitudinal Sample.

The title of the paper may lead you to assume findings are supportive of divorce contagion but we find other interesting data from the study including a possible suggestion on how to better a marriage. The abstract states the goal “to explore how social networks influence divorce and vice versa.”

“Divorce is a collective phenomenon that extends beyond those directly affected.” Friends and family may be called upon for emotional support during the process. In some cases, the still married couples are placed in the middle and asked to choose sides. Surprisingly the paper finds “attending to the health of friends’ marriages may serve to support and enhance the durability of one’s own relationship.”

However….

Data show clusters of divorce extending to two degrees of separation in a social network. In other words, a person’s tendency to divorce depends not just on a friend’s divorce status, but also extends to friends’ friends. A divorced friend or family member who lives hundreds of miles away may have as much influence on risk of divorce as one who lives next door.

According to the study “People who have a divorced friend are 270% more likely to divorce themselves.” Coupled with previous research concluding daughters of divorced parents are 70% more likely to divorce themselves I think we have our answer.

DIVORCE IS CONTAGIOUS!

Client Question: Can an IRA be transferred to or from my former spouse?

June 22, 2017/in Divorce Financial Planning /by Sandi Gumeson

Great question.

YES. Many divorce settlements require the transfer of some amount of funds in an IRA account from one party to the other.

Here are our recommended steps for completing the transaction.

We suggest this process be started immediately. This way, you may be sure you have control of the assets you fought so hard for during the divorce process.

Open a new account.

In order receive the funds we suggest the transferee open a new IRA account in their individual name. If you already have an IRA account it can be used to receive the funds.

Prepare paperwork for transfer.

Some custodians require a simple letter of authorization signed by both parties and a copy of the divorce judgment to complete the transfer. Others require signature guarantees on the letter which must be obtained from a local bank. The letter should provide the source and destination account numbers. We suggest opening the new account from step one at the same custodian as the currently existing account. It will make the transfer process easier because the custodian remains the same.

Make sure you don’t….

No matter what you do… DO NOT take a distribution out of the IRA. If you are under age 59 1/2, you will end up paying taxes and penalties on the distribution. The process we want you to complete is called a trustee to trustee transfer. It may help to contact the current custodian and simply tell them the transfer is pursuant to divorce and you would like to complete the transfer in this format.

Update your beneficiary designations.

An IRA passes to the named beneficiary if you should pass away. Make sure you have removed your former spouse if you do not want them to inherit your share of the assets.

If you follow these steps there should be no taxes or penalties on the transfer.

Let us help you.

Wellspring Divorce Advisors provides comprehensive post-divorce transition management services for our clients and can assist you with the transfer of IRA accounts pursuant to divorce settlements. Let us know if we can help in any way. We also offer long term financial advisory services through our sister companies.