144560286When contemplating the pros and cons of getting divorced, I doubt anyone ever puts in the pros column “easier to claim Social Security Spousal Benefits”. Some people may not even realize that they can get Social Security spousal benefits based on their ex-spouse’s work record. Below are some of the basics of claiming spousal benefits after divorce. Social Security spousal benefits, whether married or divorced, are calculated to be 50% of the spouse’s Primary Insurance Amount (PIA) at their Full Retirement Age (FRA). That is 50% of the benefit amount the ex-spouse would receive if they applied for benefits sometime after their 66th birthday (currently). In order to be eligible to claim spousal benefits on an ex-spouse’s work record, one has to be over age 62 and so does the ex-spouse. The marriage has to have lasted at least 10 years and one has to be divorced for 2 years. Finally, one cannot have remarried and it doesn’t matter if the ex-spouse has remarried. The advantage of being divorced and claiming spousal benefits is that the ex-spouse does not need to be receiving benefits. Married couples have to undertake some complicated paperwork machinations if one spouse wants to claim spousal benefits while the other spouse continues to work. A divorced person doesn’t even need to interact with their ex-spouse to claim benefits based on that person’s work record. One has to provide the ex-spouse’s social security number, a marriage certificate and a divorce decree to claim spousal benefits. The ramifications of claiming spousal benefits prior to your own FRA should be thoroughly understood before applying early. The same reductions in benefits that affect anyone applying for benefits before their FRA also apply to spousal benefits. For example, an ex-spouse claiming spousal benefits as early as possible – age 62, will have their benefit reduced by approximately 25%. Instead of receiving 50% of their ex-spouse’s PIA, they will receive approximately 35% of that benefit. Another important consequence of applying before one’s own FRA is that social security actually awards benefits based on one’s own work record. If the spousal benefit is greater than one’s own benefit, social security adds the difference to one’s own benefit instead of solely awarding spousal benefits. There is a misconception that one can claim spousal benefits prior to their FRA, let their own benefits continue to grow and switch to their own benefit later. Since social security is actually awarding one’s own benefit for a claim prior FRA, this strategy not possible. The good news is that one can do the switching strategy after their FRA. We have helped divorced working women who have reached full retirement age claim spousal benefits based their ex-husband’s work record. They can receive spousal benefits beginning at their FRA until age 70, while their own benefits continue to grow. By delaying claiming their own benefits until age 70, social security automatically increases their benefits 8% for each year they delay past their FRA. Continuing to work may increase their benefit even further. An additional advantage of waiting to claim benefits until after one’s FRA is that benefits will not be reduced if still working. Anyone claiming benefits prior to their FRA and earning over $15,000 in W-2 income from a job will likely see their benefits reduced. After one’s FRA, one can work without a reduction in benefit and as already mentioned may see their benefit increase. Social Security is a complex program, so whether divorced or married, it is best to meet with a financial advisor to discuss when to take social security before applying for benefits.
161542267I teach a cash flow planning course throughout the metro area. One of the ways I begin, is by asking everyone to tell me the first word that comes to mind when they hear the word budget? Often it is a negative type of word like restricting, confining, or boring. When I ask a similar question about cash flow, common responses are future and choice. The chart below illustrates some of those differences. Pic   Money is one of those issues often cited as a reason for divorce. I would offer that money itself does not cause divorce. How spouses handle money differently and an inability to recognize their different money personalities and learn effective ways to work through those differences can lead to divorce or at least cause significant strain in a marriage. Establishing reasonable and necessary future living expenses post-divorce is one of the two pillars of any divorce process. Both spouses will need to establish their own living expenses independently of one another. If money was a source of conflict in the marriage, imagine the conflict that exists during the divorce process. The reality is the money conflict can and often does escalate in divorce. In my work as a financial neutral, financial mediator, and financial planner, I work with you and your spouse to help you focus on your future. One approach to creating a future oriented cash flow plan for your post-divorce life is to add up all of your expenses necessary for your basic living needs. This would include things like housing, food, clothing, and medical care to name a few. If you are familiar with Maslow’s hierarchy of needs, this would be the lower level (safety and security) in the hierarchy. Keep in mind that at this basic level food does not include dining out. Clothing does not include upscale designer clothing. Items in this safety and security level are for basic needs. After taking care of basic needs you can then address expenses that you have total control and choice over such as dining out, entertainment, cash spending money, gifts, personal care, etc. Finally, you may want to consider future goals and needs like retirement, creating an emergency savings plan, a different automobile, or an education. Think of separating these expenses into three different categories. I ask my clients to visualize these as three distinct buckets. The buckets are one for basic needs, two control and choices, and three future needs and wants. It is important to recognize that during and after the divorce, you may need to at least temporarily forgo some if not all of the future needs and wants, and substantially minimize the control and choice buckets due to the initial financial strain of divorce. It is equally important to recognize this time-period does not necessarily last forever. Incomes can and do increase over time and some expenses such as child-care reduce and ultimately disappear at some point. A well-developed future oriented cash flow plan can give you the peace of mind to know you will be financially secure. It can give you the opportunity to choose what is important to you about money, prioritize your goals, and create a solid model and roadmap for your life ahead. A financial neutral in collaborative divorce process will help you create this type of plan. A short three-minute video on the history of cash flow and money management is available by clicking here.  
129816143If you put two smart, equally powerful people together to solve a problem with no clear right or wrong answer, they will likely come up with at least two possible solutions, and will often disagree on which solution is the best. The conundrum then becomes, which solution will be chosen? Who gets to choose? What is the basis for making this particular choice? Must one solution win and the other lose?  Now imagine that the two people trying to solve the problem are getting divorced.  The problem solving process now is emotionally as well as cognitively challenging. Collaborative Practice is founded on the idea that two smart and equally powerful people getting a divorce should be given the opportunity to create their own resolutions outside of court. But often the problems that need to be solved in a divorce do not have clear right or wrong answers.  In an emotionally charged situation, it’s easy for even the most thoughtful people to become positional and fall into a win-lose mindset, which exacerbates conflict and adds to the emotional and financial expense of the divorce process. Instead of encouraging clients to engage in positional thinking, Collaborative professionals use a process called interest-based negotiation which aims at creating win-win rather than win-lose solutions. Interest-based negotiation explores the interests, needs or values underlying positions. At this deeper level, people can often gain new insights into self and other that help them become more flexible problem solvers. I have Collaborative clients who agreed I could share their story of how interest-based negotiation helped them reach a very creative resolution regarding parenting time. These parents had agreed that a co-equal parenting time schedule would work well for their children. Based on their children’s ages, they were considering a developmentally appropriate 2-2-5-5 parenting time arrangement, in which one parent would be on duty every Monday and Tuesday night, the other parent every Wednesday and Thursday night, and weekends would alternate. But neither parent was really satisfied with this outcome. This co-equal resolution did not feel like a win-win solution; instead, both felt they were losing something important and thus couldn’t agree to this schedule. We needed to go deeper for resolution. Below the surface of the co-equal schedule proposal, some of each parent’s core interests were not being addressed.  Dad felt sadness at giving up two Friday game nights with the kids each month. Mom was unhappy about losing two Sunday worship services with the kids each month.  These were special family times for each parent.  As parents shared these concerns with each other, they reached an agreement that Dad could continue to have every Friday evening for game night, but would bring the kids to Mom’s house later on her parenting time weekends. Mom could bring the kids to church on the Sunday evenings they were scheduled to have weekends with Dad, and bring them to his house after church. These resourceful parents succeeded at reaching a unique and creative solution that would work for their family in the context of the broader parenting time arrangement.  And best of all, the primary beneficiaries are their children.