My husband(s) left me (8 of them did); I’m a starving artist.  Will I end up a poor lady?
La La Gabor, Hollywood

La La:  There is hope for you. If you stayed married with any one of your men for 10 years, you can receive Social  Security benefits as early as age 62 if you are unmarried.

But Conrad Bilton, that rat, he remarried.

Doesn’t matter.  As long as ex is eligible for benefits, you may file, even if he has not.  However, you are only eligible to collect half of his benefit and only if that number exceeds your benefit.  Sorry if it’s confusing — and I know you are 99 1/2.

I got it. And by the way, Mensch, I misspoke. I was only divorced 7 times.  The other one was annulled! Now, if I had knocked off Connie while we were married, what kind of “survivor benefits” would I have received?

Now you’re talking La La! You can collect on his earnings as early as age 60 (age 50 if you are disabled; anytime if you are caring for a dependent under the age of 16.) However, if you can wait until you attain your spouse’s “full retirement age”, (66 or 67 depending on his/her date of birth), you can collect 100% of his or her benefits rather than losing up to 30% because you started collecting earlier.

Hell, even if you divorced him you can still collect full survivor benefits, but again, you need to have been married for at least ten years. (still married when your spouse passes? You may collect survivor benefits if you were wed just nine months or longer.)

Yes — we can help sort out your issues and we work with real pros on this stuff.

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We are also looking for a part-time but full-charge bookkeeper ASAP to help our burgeoning Balancing Act Bookkeeping division.  Management and marketing skills a definite plus. Contact Mike DeAngelis for details.

Divorce is a painful subject for all parties, and the complexities of a financial separation can be daunting.  In this article, Certified Financial Planner and Certified Divorce Financial Analyst Kevin Worthley points out some of the lesser known implications of a divorce settlement.  One of the partners read this article and commented, “I wish I had read this before my divorce!”

When a  couple decides to divorce, much of the attention and emphasis of the process tends to be on the legal issues.  The financials are addressed of course, but mostly on topics of spousal and child support and the division of marital assets.   In most cases, the income, assets and how they will be divvied up are well-known to both spouses and attorneys.  Unfortunately, what is often missing are the implications of the financial settlement for both spouses after the divorce is final.  Not knowing the how’s, why’s and what if’s of the settlement you are agreeing to could have significant implications on your post-divorce life and meeting future financial goals.

Retirement accounts are a potent minefield for problems.  Many ex-spouses have short-term cash needs and look at the acquired 401(k) account or IRA’s for withdrawals.  Big mistake!  Depending upon their tax-bracket, the penalties and taxes incurred by premature distributions from these accounts could be 30-45% of the withdrawal – a nasty tax surprise for an unforced financial error.  Many people (even attorneys) do not realize that the IRS does allow a penalty-free premature withdrawal from a 401k in divorce, but there still would be income taxes to be paid regardless.

Another problem area is pension division.  Some may not realize that many pensions (such as government pensions) do not allow lump-sum distributions.  This could be important to the non-participant ex-spouse who realizes (post-divorce) that she may have to wait many years to use this particular asset in the divorce.

Social Security benefits are often little-understood as well.  One little glitch that catches pre-retiree divorcees by surprise is a restriction on claiming spousal benefits.  If a lower-benefit ex-spouse wishes to collect on the higher-earning spouse’s Social Security income benefit after the divorce, and that higher-benefit spouse doesn’t file or file-suspend, the lower-earning spouse must wait two years post-divorce before s/he can receive that higher benefit.  Of course, they could collect their own, assuming they are eligible, but not knowing this ahead of time could have big implications on their income and lifestyle.

Finally, understanding cash in-flows and living expenses ahead of time could be critical to whether an ex-spouse will be able to sustain an anticipated lifestyle, maintain a house and even be able to support themselves and children of the marriage.  All too often, divorcing people settle on a financial agreement without analyzing whether that agreement will work out well for them in the future, or they will need to start tapping savings and other financial assets (like retirement accounts!) just to make ends meet.  Knowing all of this beforehand can save a lot of grief and regret.

The key to succeeding financially in divorce is having the assistance of a qualified and experienced financial profession on your divorce team, whether that person is a CPA or a Certified Divorce Financial Analyst.  Your attorney will most likely be well-versed in the law and may have some financial knowledge as well, but may also be ill-equipped to offer specialized financial advice.  Having such advice could mean a significant difference between financial success and potential disaster.

Kevin Worthley is a Certified Financial Planner practitioner, Certified Divorce Financial Analyst and principal advisor/owner of Equitable Divorce Solutions, LLC, offering divorce financial advice and counsel to divorcing spouses in RI and MA.  Visit his website at www.equitable-divorce-solutions.com or e-mail him at kevin@equitable-divorce-solutions.com

Any views, opinions, and statements are those of Kevin Worthley exclusively and may not represent the views, opinions, and/or statement of Aaronson Lavoie Streitfeld Diaz & Co, PC or its officers or owners. Nor has Aaronson Lavoie Streitfeld Diaz & Co reviewed or authorized the information Kevin Worthley has presented and it expresses no warranty on them.

Divorce can be traumatizing.  Not always, but even in the most amicable situations separation is a nuisance. Yes, this is how I spent my summer vacation.

Think you’re done once you’ve had her beheaded, Henry (VIII)? Review the beneficiaries on your retirement accounts. Do you still want your ex on them? You might. Be sure to rummage through your papers and contact the custodian for that 401(k) from your stint at Apple fifteen years ago. You may have neglected to roll it over. Hell Henry, you may still have Anne Boleyn on that account.

Do you have life insurance? (If not, why not?) Who gets the proceeds? If you have minor children you may want to consider placing life insurance in a trust. Do you have a will? Do you really want the state’s “intestate” rules to decide who gets what when you kick the can?

(I am insurance-licensed. Don’t fire me, e-mail me.)

Does your ex have life insurance? What will substitute for child support if he goes sky diving and it doesn’t work out? You may want to makestipulations in your divorce agreement (not to prevent his self-indulgence but to require you be the beneficiary on his policy until Rocket and Elektra are a certain age.)

Is it clear from the divorce agreement who is claiming the children? Can either of you file with the more favorable head of household status? Sometimes both can — if you have two children and meet other tests. Maybe one of you now qualifies for the earned income credit. You may want to adjust your salary withholding to avoid sticker shock or that lesser horror, an unduly large refund (when you really needed the cash during the year.)

(My snazzy tax software can help project the results.)

Are you prepared for the pending financial changes?. The child support could be substantial — even if you share custody and are paying for Ripley when he is with you as well. Child support is based on respective incomes, not how much pizza your teen eats at each location. And no, it is not tax-deductible.

Are you the child support recipient? Prepare a budget to help navigate your new situation. It can be difficult in the beginning — you’ve lost the efficiencies of one household — and your earning power may be reduced because of increased domestic responsibilities. You’ll make it through. and the raw emotions from your past life will pass. You might marry again (and again and again), Elizabeth (Taylor), and Richard might even be available for a second fling (Burton, that is, not Streitfeld).

I am excited to be participating in a free October webinar, Financial Planning For Families with Special Needs. Write to me.

You have been fighting for years and he is evasive about money. Of course you ARE right — he cannot be trusted. But that does not mean there is a treasure of gold in his beat-up pick-up truck. She did NOT declare those yard sale earnings on her 1992 tax return. Because she under-reported her income, does that mean she also convinced her employer to doctor her W-2 so that she would show smaller earnings?

A few years ago I testified in court for Jill, a client whose divorce proceedings had gone on near seven years. Husband Jack had refused to sign joint tax returns simply out of spite, which would have resulted in Jill paying tens of thousands more- even though Jill was the sole provider, and Jack was dependent on her financial well-being to support their children.

(My company, ALSD,  provides divorce financial planning,  forensic accounting and litigation support services.)

Click on the titles to  read previous Dispatches such as  “Is Sex Therapy Tax Deductible?“, “Embezzlement Made Easy” and “Business Mistakes with Friends“. All articles are posted on the website of Aaronson Lavoie Streitfeld Diaz and Co, where I have been a partner since 1998.

Impoverishing One Impoverishes All

If at all possible try to think as an economic unit, at least until the divorce is final. You are right – he/she is a louse –and you do need to have your financial needs met in a fair and equitable fashion. However when one party tries to grab all the tax benefits at the expense of the other, all may lose out – less money for the kids, more money for the lawyers. For instance if Sharon refuses to sign a joint return while the divorce is in process and Greg makes more money, she may save $500 but he may lose $5,000. This may make Sharon happy, but may also make a settlement more elusive, drag out the proceedings and make it more difficult for Greg to provide for his share of any agreement.

A better way? Sharon agrees to file jointly, but in exchange Greg pays her the $500 she would have received had she filed separately.

Thinking as one unit often means continuing to file “married joint” until the divorce is final. Why? Married filing separate brings a higher (combined) tax bill and the loss of valuable tax benefits, especially related to kids and education. Deductions and dependents have to be allocated – no, the tax service will not let both of you claim Junior or the mortgage. Own rental property? Married filing separate your maximum loss may be reduced – or zero.

That said, there are situations where a joint return is not advisable, or simply impossible. You may be suspicious of your spouse’s business reporting or wary that part of the refund will be diverted to pay her student loan debts. You may have such a disparity of incomes that the benefits of joint filing are reduced or eliminated. Maybe relations are so bad that you cannot manage the details of splitting a joint refund – or payment, so you forego it.

Document your Non-Custodial Agreement

Who claims the child or children? Often couples will decide to alternate, even if one has actual physical custody – Sharon claims Junior this year, Greg takes him next year – and this is memorialized in the divorce agreement. In the eyes of the IRS, however, the divorce agreement is not sacrosanct and in case of dispute can be trumped by “facts on the ground”. What does this mean?

Next year arrives, they are divorced, and Sharon is upset that Greg is behind on paying child support. She decides to claim Junior on her taxes. Greg goes by the agreement and claims Junior as well. The IRS disallows both deductions until it can determine who the “custodial parent” is. Greg submits the divorce decree; Sharon submits documentation that Junior stayed with her “the majority of the nights.” A few years ago the IRS explained that it would side with the actual custodial parent, regardless of the divorce terms. Sharon wins.

How could Greg have prevented this travesty? – After all he negotiated and planned for claiming Junior at least half the time. At the time of settlement, he needed to have Sharon certify her release of the dependency exemption for those specific future years via IRS Form 8332, and then attach the signed form for that year to his tax return. Then she cannot override his exemption even if Junior was there 366 days. She has released her right to the exemption for that year.

Other Considerations

• Divorce and the tax code – not to mention human relationships – are all exceedingly complex. Here are a few other issues to be aware of while you navigate this difficult process.
• Child support is not taxable to the recipient or a deduction for the payer. Alimony is taxable to the recipient and a deduction for the payer. But child support is generally statutory – controlled by legal guidelines in each state
• Are you married but living apart from your spouse for the last six months of the year? If you are supporting a dependent you may be eligible for head of household status, which is far more beneficial than married filing separate. However, very specific conditions must be met, and both parents may not claim the status for the same child.
• Negotiating for property ownership but thinking you may need to do a “short sale” down the road? There can be adverse tax consequences if that happens – you could be taxed on the amount of the forgiven mortgage. There are protections in place to prevent this, but some of them are scheduled to expire at the end of 2012 and/or do not apply to a second home.
• Is your tax status changing? You may need to change your salary withholdings or estimated payments. You do not want to get caught by surprise on April 15 – and even if it’s a good surprise you very well might prefer that larger refund in your weekly paycheck.
• Think carefully about how your dependency deductions may impact applications for college financial aid. Colleges that rely solely on the government financial form (FAFSA) do not directly take in to account the second parent’s income once you are divorced. Private schools and some public universities are more likely to utilize other financial forms as well, that do require disclosure of both parents’ income and assets.

©2011 Rich Streitfeld