Breaking Bonds, page 19
A military pension division order (MPDO), which is like a QDRO, must be in place for you to receive the benefits directly from DFAS (see Resources).
If you have been married to a military spouse for under ten years, you may still be able to receive part of the military pension benefits in the divorce decree, but your spouse will have to be required to forward them to you within a specified period after receiving them.3 If he doesn’t comply, you will have to take him back to court. Your lawyer and/or financial advisor can advise you as to whether it would be better to take a lump sum instead and sever all ties, especially since you are dealing with an abuser.
There are two types of individual retirement accounts, which are also qualified assets. The regular IRA (or IRA) allows an individual to fund a tax-deductible contribution of $6,000 per year plus an additional $1,000 contribution at age 50 and over, subject to eligibility based on income and whether the individual is covered by a corporate plan. The funds grow tax-deferred, so there is a greater compounding effect over time than with after tax assets. Withdrawals are fully taxable and are also subject to the fifty-nine and a half rule.
The Roth IRA has the same contribution limits, but there is no tax deduction allowed. The account grows tax-deferred until you withdraw the funds. If you follow the rules, withdrawals are tax free, which makes these assets quite valuable. There is no minimum required distribution at age seventy and a half, as is required for other retirement accounts. If your husband owns a ROTH IRA, try to get at least half of these assets in the divorce decree, which can be transferred directly into a ROTH IRA account in your name.
With a regular IRA, you can make withdrawals before age fifty-nine and a half, so long as the periodic payments are substantially equal and the payout period lasts for a minimum of five years—or until you reach age fifty-nine and a half, whichever is longer.
There are several methods to determine the monthly amount you will have to withdraw for that period without making any changes. If you do make a change in the amount, a 10 percent federal tax penalty is applied retroactively to all previous withdrawals, so get financial advice before you make any decisions to avoid a very costly mistake.
Income taxes still apply to any withdrawals. The tax penalty may be waived in the case of medical expense, disability, qualified higher education expenses, and a few other limited exceptions that I won’t cover here.
It is in your best interest to avoid touching your retirement nest egg until you reach full retirement age even if you are tempted to take it early (see “Social Security Survivor”). Live within your budget and avoid premature withdrawals.
Do not jeopardize your future by making withdrawals from retirement funds to maintain your children’s lifestyle or to pay for their college expenses. Their dad can help them, and they can also help themselves. They can get loans and grants if they want to go to school.
Deferred compensation plans normally have a vesting schedule if there is an annual company matching contribution. They are usually awarded to the spouse who holds the plan. Be sure to get a current statement right before mediation begins or your first court date to get an updated value. Also, be sure to note what time of the year matching awards are made, and vesting occurs. You are entitled to receive compensation for your share of the vested benefits, so discuss what this means in detail with your attorney.
OTHER FREEBIES
“Write injuries in dust, benefits in marble.”
―BENJAMIN FRANKLIN
Flexible spending accounts or flex plans (125 plans) allow employees to set aside money in an account before tax to pay for health insurance premiums, uninsured care for an employee or dependent, or for dependent care. The unspent balance used to be forfeited if not used by year end; however, you can now carry forward up to $500 from one year to the next. The balance in an FSA account is part of the marital estate, so there should be a cash buyout of the spouse’s share of the remaining balance in the account.
Health savings accounts also allow employees to set aside money in an account before taxes for these expenses, and the unspent balances can be carried forward indefinitely. Make sure this item is on your list for discussions with your attorney and during mediation.
These small items are easily overlooked, but they can add up. You are entitled to a share of them.
Do not forget about upcoming bonuses, which are part of the marital estate. Some bonuses have different names, such as signing bonuses, retention awards, performance awards, and the like. These are all most likely to be considered part of the marital estate unless they are partially earned through work completed after the divorce. In that case, part of the bonus will be allocated to the marital estate based on work completed before the divorce is final.
The value of accrued leave for military service may be a marital asset in your state. Also, commissary benefits and exchange benefits are available for former spouses who had not remarried when the marriage lasted for at least twenty years during which at least twenty years of military service occurred.
SOCIAL SECURITY SURVIVOR
“Social security makes up a much larger share of total retirement income for unmarried women than for married couples, unmarried men, and whites.”
―DIANE WATSON
If you have worked, you have a social security earnings record and are entitled to receive full social security benefits when you reach full retirement age, which under present law is between ages sixty-five and sixty-seven. The amount that you will receive will depend upon your age and earnings record.
At age sixty-two, you are eligible to receive 75 percent or less of your full retirement age benefits, depending on your year of birth. I do not recommend that you take benefits early because the checks that you will receive for the rest of your life will be permanently reduced. Do not make that decision lightly. People live longer now, and cost-of-living adjustments to social security certainly do not keep pace with inflation. You won’t be able to live on just your social security alone, but you can at least make the amount you get every month the highest possible.
Find out what your ex-spouse’s social security benefits are as well, because you will have the option to draw 50 percent of the benefits based on his record if you have been married for at least ten years, and your marriage was valid under your state’s law. This includes common law marriage if your state recognizes this category of partnership.
If your benefits will be higher based on his record, and you are close to your ten-year marriage anniversary, you may want your attorney to slow down the process of divorcing him until you have reached that important milestone.
If you remarry before age sixty, you may not be able to collect benefits based on his record unless your subsequent marriage ends.
Once you are divorced for at least two years, you will be able to claim benefits based on your husband’s record, even if he is eligible, but is not yet receiving benefits himself. Benefits that you collect on his record will end if he dies or if you become entitled to social security at the same or a higher amount based on your personal record.
If your ex-husband dies, you may be eligible to receive survivor benefits of 100 percent of his benefit if you:
Were married for at least ten years,
Are at least sixty years old (or at least age fifty if you are disabled),
Are not entitled to retirement benefits that are equal to or greater than his,
Have not remarried before age fifty and are at least age sixty (or at least age fifty, if you are disabled) when you file.
If you have been collecting social security benefits based on your ex-husband’s record, you can switch to receive survivor benefits at his death if they are higher. Your benefits will not affect the dollar amount of the benefits your children receive.
If you will receive a government or foreign employment pension and are not eligible for social security benefits, it may affect your ability to claim on your husband’s record. Check with the Social Security Administration (see Resources). I recommend that you also consult with an attorney who specializes in these matters, as some of my clients receive unreliable or incomplete information when they contact SSA. Their office can be extremely difficult to reach by phone.
Social security laws may change in the future, so please discuss which strategy will be most beneficial to you with your financial advisor. You may obtain a copy of your social security earnings records at www.socialsecurity.gov. Make sure that you get a copy of your husband’s record as well. Your attorney also should request it in the formal request for production of documents during discovery. Remind your attorney that this needs to go on the document request list if you don’t already have a copy of it.
CHAPTER TEN
FINANCIAL DECISIONS
YOURS, MINE, AND OURS
“I do not wish for women to have power over men,
but over themselves.”
―MARY SHELLEY
Almost all property acquired during a marriage, except for inherited property or gifts, is considered marital property regardless of who owns it or how it is titled—unless you have a prenuptial agreement specifying otherwise.
By contrast, any property you owned before the marriage, inheritances you received before or during the marriage and kept in your name alone, the pain and suffering portion of a personal injury judgment, and personal gifts are considered your separate property in most states. If you commingle separately owned property and jointly owned property, it is usually considered marital property.
In some states, passive and active appreciation during the marriage on separately owned property is considered marital property. Passive appreciation is appreciation in value that occurred due to factors such as inflation and market value increases.
Active appreciation of your separately owned property requires a contribution by your spouse, such as a cash infusion to help you to grow your business.
Community property states view both spouses as equal owners of all property and require a 50/50 split of all marital property.
Equitable distribution states do not require a 50/50 split, but the distribution should be fair and just. Many factors are taken into account to determine fairness and justness, including the length of the marriage, the financial situation of each party, the standard of living of each party during the marriage, the income and earnings potential of each spouse, the needs of the custodial parent of minor children, and the contribution of one spouse to the education or earnings capability of the other spouse. Debts are divided as well.
Community property and equitable distribution states have different laws regarding the division of property, so please ask your attorney to clarify the laws in your state for you. It is very difficult to predict what the outcome would be if such a case is tried in court by a judge, so more than 95 percent of all divorces settle out of court.
In some states, income produced by separately held property during a marriage is considered marital property. This income may include rental income, interest income, earned income from business interests, and dividends.
Also, if your spouse earned a professional degree during the marriage, the degree may be considered an asset—meaning, you may be entitled to a share of its value.
If you have commingled separately held bank accounts or brokerage accounts, some states will conclude that those assets are now considered marital assets, while some other states will allow you to trace the funds back and allocate the withdrawals to be reimbursed.
If you bought a home during the marriage using joint and separate property, some states would require the spouse who contributed separate property to be reimbursed, while in other states it is all marital property.
If separately held funds (inherited or acquired before the marriage) were used to improve the marital home or to pay off the mortgage, reimbursement might be required in the division of assets. Your attorney will inform you of the laws of your state.
One of my clients told me that his daughter was getting divorced and that her attorney told her that she would have to give half of the brokerage account that he had funded for her many years ago to her husband in their divorce. The account had been kept in just her name all those years, and no funds had ever been added to the account by anyone other than her father. In her state, that is not considered to be marital property. The husband argued that he had contributed to paying taxes on the account. But he did not acknowledge the fact that his father-in-law had loaned him and his wife the down payment on their home and that they had never paid him any interest or principal on that loan. The daughter stood up for herself and argued that her ex-husband was not entitled to any part of the brokerage account, and she received the account as separate property during mediation.
Although you probably won’t get more than half of the marital assets, you do have a say in which half of those assets you get. You may not get everything that you want, but you do need to get a lot of what you want. Don’t take what you don’t want. For example, you can’t be forced to take the house if you don’t want it or can’t afford to make payments on it, especially since you would have to pay all the closing costs to sell it instead of splitting those costs with your husband if he doesn’t want the house either. You can’t be forced to take only the retirement assets if you also need cash for emergencies and to buy a house eventually. You are only required to take half of the retirement assets even if your husband doesn’t want them.
If neither you nor your husband wants the house, it should be spelled out in the divorce agreement that it will be sold and you will both split the net profits, but only after all expenses and debts are paid—both yours and your husband’s. Spell out in the agreement that the escrow agent or title company for the sale is to make checks payable for your net portions of the sale after these bills are paid directly to each of you. If the house doesn’t sell within a certain period, require that it be auctioned. You don’t want to have to deal with this unwanted real estate indefinitely.
Now is the time to fight for yourself and your future. Remember that the attorney’s job is to give you good legal advice, not to decide the settlement for you. You also need to make sure that the attorney protects you from your husband’s present and future bad behavior. Do your best to anticipate what he will do and then discuss those dangers with your attorney. If these issues are not addressed appropriately in the divorce agreement, you won’t be protected.
ALIMONY DOESN’T LAST
“An investment in knowledge pays the best interest.”
―BENJAMIN FRANKLIN
Alimony is a temporary fix to allow you to get back on your feet. It will be very important to discuss this issue in detail with your attorney, as it varies from state to state. If you and your husband are not able to come to an agreement on the amount, the judge in your case will make a determination based on the circumstances of your situation. Factors taken into consideration include the length of the marriage, whether you have children, your employability, age, medical condition, needs, customary lifestyle, and the ability of your husband to pay. Please also note that if your income is higher than your ex-husband’s the judge may instruct you to pay him alimony.
Some judges take a hard line against abusers by making them pay significant alimony, even though marital support is not supposed to be punitive. This approach is understandable, as chronic long-term abuse can affect a woman’s ability to function. The cost of undergoing therapy to recover from abuse and the cost of job training are factors that should be raised by your attorney, especially if your husband did not let you work during the marriage in order to maintain control over you. Consult with a psychiatrist or psychotherapist to see if a diagnosis of PTSD is appropriate and to assess your current ability to work without extensive treatment for it.
The guidelines of individual states determine the level of child support.
Alimony doesn’t last forever, so it is incumbent upon you to become self-supporting as soon as possible. Have a plan, get the therapy and education you need, and get a job. If you are at a loss as to what to do, get job counseling and take aptitude tests. Most alimony has an end date, or it ends if you remarry or cohabit, whichever comes sooner. Please make sure that you know what the rules are. Your husband may petition the court for a modification of the alimony payments due to changed financial circumstances for either one of you. If you’re spending a lot of time with a new boyfriend after the divorce, a judge might view this as cohabitation.
Make sure that you have protection for your alimony payments. Alternatives include buying a life insurance policy to replace this support if your husband dies, a lien on real estate that he is awarded in the divorce, or a clause in the QDRO for your husband’s pension if he is expected to retire before your alimony terminates. Discuss strategy with your attorney. If you can garnish your husband’s wages, this would be preferable to having to take him back to court to comply.
WHAT IT’S WORTH
“What you risk reveals what you value.”
―JEANETTE WINTERSON
Many divorcing couples argue over property and business valuations. Keep in mind that assessed values for property taxes are well below the actual market values and that you will need to get your home appraised. Make sure that the appraiser is impartial and provides recent comparative sales in the appraisal to justify the appraised value. If you can’t both agree on an appraiser, the court will appoint one for you.
If you or your husband has a business, use an objective professional business appraiser, rather than the regular accountant, to value the business. If your husband has been paying the accountant for years, that person may be biased against you. There are several different methods that may be used in valuing a business. Keep in mind that the cost/asset method frequently produces the lowest valuation. The market method, which compares the business to other similar businesses, may not be useful if your family business is a small business.
