If you are considering divorce, currently navigating through negotiations or recently completed a settlment you probably have a lot of questions, most of which boil down to, “Am I going to be OKAY?” Reality is that everyone’s definition of okay is different and everyone’s idea of fair in financial settlements is different. Building a Competent and Trust-Worthy team of advisers that can help you determine what OKAY and FAIR really mean to you and your family is crucial in this emotional time of your life. There are really three parts to every divorce. The Legal, the Emotional and the Financial. You need an attorney to provide legal advice. You need a Mental Health Professional to help you navigate your emotions. You need Wellspring Divorce Advisors to provide financial advice, guidance and creative solutions so you can avoid the common financial mistakes made in divorce and transition successfully into your new financial reality with a game plan for financial independence.
In an article from HuffPost, they offer great tips on how to choose a “Mediation Friendly” lawyer. But here are more tips on how to effectively find the right team to help you with your divorce.
Ask your mediator for referrals to attorneys they know, respect and have worked with.
The consulting attorney you hire will be the only source of advice regarding your rights and obligations under the law. You need this advice so do not choose the least expensive person you can find. They may even be asked to draft legal documents such as Marital Settlement Agreement or Qualified Domestic Relations Order. Remember, No matter what method you choose to divorce, it is a legal process and legal advice is necessary.
Consider also having a financial advisor help you understand the short and long-term ramifications of settlement options.
Divorce is the largest financial transaction that many people will experience and you will live with the results of your decisions for the rest of your life. Make sure they are made with all of the financial information at your fingertips and expert advice from someone experienced in the financial intricacies of divorce. Google Divorce Financial Planning and look for a professional with Certified Financial Planner and Certified Divorce Financial Analyst credentials.
A financial planner experienced in divorce financial planning will help you gather the necessary data, level the playing field in financial knowledge when one party has not been involved in the family management and even help you brainstorm settlement options to take back to mediation.
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.
No-fault divorce refers to a divorce in which the granting of a dissolution of marriage does not require a showing of wrong-doing of either party. It is therefore not necessary for one party to produce evidence that the other has committed a breach of the marital contract. In other words. You do not have to prove that your spouse cheated or misrepresented themselves in order to seek a divorce.
“No-fault” divorce in the United States originated in the state of California effective January 1, 1970, in a bill signed by then governor, Ronald Reagan. In August of 2010, New York governor, David Paterson, signed “no-fault” divorce into law, and since October 15th, 2010 no-fault divorce has been legal in all 50 U.S. states.
Prior to no-fault rules, a divorce could only be obtained through the showing of fault of one of the parties. Unfortunately it wasn’t just about proving the other party didn’t love you anymore. Instead you had to prove one party had breached the marital contract through adultery, abandonment, felony or other culpable acts. In circumstances where there was no party at fault and the couple simply wanted to dissolve their marriage a couple might arrange for what New York practitioners called “collusive adultery”. A pre-arranged time would be set by mutual agreement for Wife to return home to find Husband with a mistress. This finding would offer the evidence of adultery necessary to obtain a divorce.
These types of arrangements were common along with black mail through unsubstantiated accusations of fraud, cruelty and criminal behavior. I am told by attorneys in New York and Connecticut that black mail and other legal fictions were common for divorces in New York state until the 2010 adoption of no-fault laws.
The opposing party would often not contest pleadings or do so only sparingly as a token for the courts. Ultimately judges and some lawyers began to recognize the affect these legal fictions could wind up having on the judicial system considering the dissolution proceedings were started with lying under oath.
The term no-fault may eventually fall out of the vernacular of the American people as no-fault laws have now been adopted by all states in the union. I was asked to explain what it meant recently and imagine it will take time with television representations like the 1960’s divorce played out in the AMC series Mad Men. The DVD for Mad Men Season 4 contains “Divorce: Circa 1960s” – A three-part documentary about divorce during a time when the traditional family was the core of American society. I have not seen it yet but friend and colleague, Constance Ahrons, has had good things to say.
These “celebrity” Divorce Lawyers aren’t the only ones billing out at $600 + per hour. Keep in mind that price is only an issue in the absence of value. I do not have personal experience with any of these attorneys but imagine they bill out at such a high rate because they deserve to do so based on experience, knowledge and skill. I would pay to spend a day in court with each of them to watch how they operate.
Read the Article at HuffingtonPost
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 1930’s 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.
The largest component of benefits is retirement income. Throughout a person’s working life the Social Security Administration keeps track of income and taxpayers fund the program via payroll taxes also known as FICA (Federal Insurance Contributions Act) taxes. The amount of the monthly benefit to which the worker is entitled depends upon the earnings record and upon the age at which the retiree chooses to begin receiving benefits. FICA taxes are 7.65% for employees and 15.3% for self employed individuals. The amount of taxes paid is not directly used to calculate an individual’s benefit. The rate is broken down into two parts: Social Security and Medicare. The portion is 6.2% and is paid on a maximum of $106,800 of income for 2009. The income maximum is also known as a wage base. The Medicare portion is 1.45% on all earnings. These rates are set by law and haven’t changed since 1990. The wage base for Social Security is indexed each year for inflation and Medicare has maintained an unlimited base since 1993.
Self employed person’s pay double the amount of tax because the employer is responsible for the other half of an employee’s liability. A self employed individual is both employer and employee. There are wages not subject to FICA taxes including some state and local government employees who participate in alternative programs such as CalSTRS and CalPERS. Each state and local government unit with a pension plan decides whether to elect Social Security and Medicare coverage. Civilian federal employees are covered by Medicare but usually not Social Security.
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.
Benefits are paid from taxes collected from other tax-payers. This makes it a pay as you go system and will eventually be directly responsible for the downfall of the program. At least as we know it today. In 2009, nearly 51 million Americans will receive $650 billion in Social Security Benefits. Economists project that payroll taxes will no longer be sufficient to fund benefits somewhere in the next 10 to 15 years. Once we can’t cover the expense from cash flow, the program will begin drawing down the trust fund it has accumulated during times of surplus taxes. We can only speculate what happens when the trust fund runs out. This is the cause for concern often discussed in the news and other media. The fix for this problem is the subject of much political posturing including that witnessed in President Bush’s 2005 State of the Union address.
The first reported Social Security payment was to Ernest Ackerman, who retired only one day after Social Security began. Five cents were withheld from his pay during that period, and he received a lump-sum payout of seventeen cents from Social Security. This might give you an indication of how Social Security handles business.
A current spouse is eligible to receive survivor benefits equal to 100% of the deceased worker’s benefit if they have reached normal retirement age.
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.
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.
Windfall Elimination Provision and Government Pension Offset Provision
For those worker’s who are covered by a pension based on their own earnings not covered by Social Security a different method of computing benefits applies. The alternative method is called the Windfall Elimination Provision (WEP) and was created to close a loophole that enabled worker’s who earned benefits in covered and non-covered employment from being labeled a low-earning worker and receiving a disproportionately large Social Security benefit.
The formula is weighted in favor of low earners because such a person is more dependent on Social Security. If the WEP is applicable it reduces a worker’s Social Security benefit by 50% of the worker’s pension benefit up to a maximum of $380.50 in 2010.
If you earned a pension based on work where you did not pay Social Security taxes, your Social Security spousal or derivative benefits may be reduced. The Government Pension Offset Provision (GPO) was enacted to treat retired government employees who had not contributed to Social Security similarly to retirees who had. The GPO reduces derivative benefits by two-thirds of other government pensions received. This can reduce Social Security benefits to zero.
The truly important ramification of the WEP and GPO on Social Security retirement benefits comes into play during divorce proceedings. Federal Law makes Social Security benefits the separate property of the party that earned them.
They are not assignable or divisible in a family law court and not considered an asset of the community in California.
Government and other pensions, on the other hand, are considered community property in the state of California to the extent benefits were earned during marriage. Derivative benefits under the Social Security program for ex-spouses would seem, at first glance to remedy the problem. The non-worker spouse get’s half of the worker’s retirement benefit via derivative benefit payments. Getting to the true ramifications of the WEP and GPO during divorce proceedings requires sound financial planning.
Consider the following couple.
– Jim was a private employee covered by the Social Security system. He retired at age 66 with a monthly Social Security benefit of $2,014.
– Barbara has been employed as a teacher for 30 years covered by the California State Teacher’s Retirement System. She retired this year at age 65 with 30 years of service under CalSTRS and a monthly benefit of $5,520 without having paid a single penny into Social Security.
– Barbara’s CalSTRS benefits are considered community property in California having been earned entirely during marriage.
– Jim and Barbara are divorcing and her CalSTRS pension will be divided equally with each party receiving $2,760.
– Jim will continue to receive his $2,014 per month of Social Security.
– Barbara will be entitled to a derivative Social Security benefit equal to one half of Jim’s benefit, $1,007, or the benefit she has earned on her own record. Barbara has not earned a benefit on her own record so she will choose to receive the derivative benefit on Jim’s record.
– The Government Pension Offset will reduce Barbara’s Social Security benefits by two thirds of her $2,760 pension benefit, or $1,839.82. The GPO leaves Barbara with $0 from the Social Security derivative benefit.
– Barbara will receive a total of $2,760 from her CalSTRS Pension and $0 from Jim’s Social Security derivative benefit.
– Jim’s Social Security benefits will not be affected by the GPO or WEP.
– Jim will receive $2,760 from Barbara’s CalSTRS benefit and $2,014 from his Social Security retirement benefits for a total of $4,776.
What looks to the lay person to be an appropriately arranged method for completing an equal division of assets leads to a grossly in-equitable settlement that provides Jim with $4,776 per month and Barbara with $2,760 per month.
The California Federation of Teachers sponsored a rally on November 7th 2009 to urge Congress to pass SR 484 in the Senate and HR 235 in the House of Representatives to repeal the Government Pension Offset and Windfall Elimination Provision. This has been attempted numerous times before without success. Social Security is a monster of finances, public policy and entitlement. Making changes is not easy or quick.
Consulting with a qualified financial planner experienced in the nuances of divorce finances and retaining their services as a neutral expert or advisor will help divorcing individuals work with and around in-equities caused by the system.
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