Money and Finances Archives | Collaborative Law Institute

Presentation Date: Thursday, April 25, 2024
Title: Navigating Social Security Benefits in Divorce and Retirement
Presenter: Mike Miller, CFP®
763.201.1390 | mike@integrashieldfinancial.com
Website: www.integrashieldfinancial.com
Description of Program:
This training will focus on helping attorneys improve their knowledge and understanding of Social Security and how divorce and retirement will impact their clients’ potential benefits.
We will briefly discuss the history of Social Security and its expansion in 1939. We will look at the value of Social Security and the application of Cost-of-Living Increases over time.
There will be a special focus on Social Security spousal benefits, divorced spouse benefits, survivor benefits and divorced survivor benefits including the requirements to qualify for these benefits. Though these benefits apply to all ages they are especially impactful in gray divorces.
Taxation of Social Security benefits will be discussed along with the unique provisions of the Windfall Elimination Provision and the Government Pension Offset.
We will briefly discuss Income Related Monthly Adjustment Amounts for Part B Medicare Premiums and exceptions for life changing events such as divorce.
Time:
11:30 AM Attendees arrive/Lunch served
11:50 AM Announcements and introductions
12:00 PM – 1:00 PM Presentation
Location: 3300 Edinborough Way, Edina, MN 55435, 1st Floor Training Room
Cost:
CLI Members and non-members: $25
CLI Student Members and CLI Emeritus Members: $10
Annual Partners: $0
Continuing Education:
1.0 credit PENDING MN CLE
Certificate of attendance for self-filing for MN Board of Psychology, LMFT, LICSW & ADR.
Cancellation: Refunds for registration will be processed if notice of cancellation is received by 4/18/24.
Who Should Attend: CLI Members, Family Law Professionals
Educational Level: Overview
Training Committee Chairs:
Louise Livesay-Al | louise@livesaylawoffice.com
Rebecca Randen | rebecca@rcglawoffice.com
For questions on registration contact: Sandy Beeson: cli@collaborativlaw.org

August 5, 2023August 12, 2023

If you are going through a divorce, you might be feeling anxious about how to deal with spousal maintenance. Spousal maintenance, also known as alimony, is a payment that one spouse makes to the other after the divorce to help them maintain a similar standard of living as they had during the marriage. The amount and duration of spousal maintenance depend on various factors, such as the length of the marriage, the income and assets of each spouse, the age and health of each spouse, and the earning potential of each spouse.

The stereotypical spousal maintenance case is where one spouse stayed home with the kids while the other spent a decade or more advancing their career and now that there is a divorce the stay-at-home parent is going to fall off a financial cliff (because they have little or no income potential) unless the career spouse helps them out financially.

While it may be tempting to rush through negotiations and reach a quick agreement, taking a methodical approach to budgeting and comparing incomes and expenses can save you time, money, and potential regrets down the line, especially when figuring out spousal maintenance.

The Pitfalls of Cutting Corners:

When faced with the daunting prospect of divorce negotiations, it’s only natural to want to expedite the process. However, hastily reaching an agreement without delving into the intricacies of your financial situation can prove to be penny wise and pound foolish. By avoiding the necessary work and disregarding a comprehensive assessment of incomes and expenses, you risk making uninformed decisions that may later backfire.

Fear as a Driving Force:

One of the main reasons individuals may be inclined to cut corners is the fear of what their spouse might ask for in terms of spousal maintenance. This fear often leads to a desire for a quick resolution, even if it means sacrificing a thorough understanding of your or their financial situation. However, succumbing to this fear can be counterproductive and end up costing you more time, money, and emotional energy in the long run.

The Benefits of Methodical Budgeting:

Who wants to create a budget? Hardly anyone! But ask any Family Law Attorney and they will tell you that budgets are the key to figuring out spousal maintenance. Engaging in methodical budgeting and comparing incomes and expenses can yield numerous advantages during divorce negotiations.

Let’s take a closer look at some of the key benefits:

Informed Decision-Making: By thoroughly understanding your financial circumstances, you gain the ability to make informed decisions regarding spousal maintenance. This ensures that any agreement reached is fair and reasonable, taking into account both parties’ needs and financial capabilities.
Transparency and Trust: Demonstrating a commitment to a methodical approach fosters an atmosphere of transparency and trust during negotiations. By openly discussing and analyzing the financial aspects of the divorce, both parties are more likely to feel heard and respected, leading to a higher likelihood of reaching an amicable agreement.
Long-Term Financial Stability: Rushing through negotiations without a comprehensive understanding of your financial situation may result in an unsustainable spousal maintenance arrangement. Taking the time to carefully evaluate incomes, expenses, and future financial prospects enables you to create a plan that promotes long-term financial stability for both parties involved.
Minimized Legal Costs: While investing time and effort in methodical budgeting may seem time-consuming at first, it can significantly reduce overall legal costs. By proactively addressing financial concerns during negotiations, you reduce the need for repeated revisions and potentially costly legal interventions down the line.

Divorce negotiations are rarely easy, but by embracing a methodical approach to budgeting and comparing incomes and expenses, you can pave the way for a smoother and more satisfactory resolution. Rather than succumbing to the fear of what your spouse may ask for in spousal maintenance, investing the time and effort to fully understand the financial landscape can lead to a fair and reasonable agreement that benefits both parties in the long run. So, take a deep breath, roll up your sleeves, and embark on the journey towards a well-informed and amicable divorce settlement. Your future financial stability is worth the extra effort.

You should consult with a lawyer who can advise you on your legal rights and obligations regarding spousal maintenance. You should also consider working with a financial planner or Certified Divorce Financial Analyst (CDFA) who can help you create a realistic budget and plan for your future. You should also seek emotional support from your friends, family, or a therapist who can help you cope with the stress and anxiety of the divorce process.

By making informed and rational decisions about spousal maintenance, you can achieve a fair and reasonable outcome that respects both your and your spouse’s interests. You can also avoid unnecessary conflicts and drama that can prolong and complicate the divorce process. And most importantly, you can protect your well-being and happiness after the divorce. Remember, being penny wise and pound foolish rarely pays off in the complex realm of divorce negotiations.

Carl Arnold is an experienced family law attorney and mediator. He currently focuses his practice on Family Law Mediation (including child-inclusive mediation), Collaborative Divorce and Custody Evaluations. His office is in Northfield, Minnesota and he works with people from all over the state using Zoom. Carl has been a long-time member of the Collaborative Law Institute.

Attorney/Mediator, Arnold Law and Mediation LLC, carl@arnoldlawmediation.com
507-786-9999
www.arnoldlawmediation.com

April 2, 2019

It’s important for divorcees to review and adjust their W-4 payroll withholding or start to make quarterly tax estimates following their divorce. Often, they are so relieved to have reached settlement, they fail to think about these housekeeping items. If divorced in 2018, this is especially important if transferring taxable spousal maintenance. The payor spouse can likely change their payroll withholding to increase their net income. The payee spouse will need to withhold additional tax dollars on their salary or make quarterly estimated tax payments, to account for taxes on the spousal maintenance payments received. If the payor spouse doesn’t adjust their W-4, they may not be able to meet their budget during the year and would probably receive a large tax refund when taxes are filed. If the payee spouse doesn’t adjust their W-4 or start quarterly estimated taxes, they could have a large tax liability when they file their return. Even if there isn’t taxable spousal maintenance, individuals still may need to adjust their withholding. Things that can impact taxes and often require an adjustment are a change in their filing status, pre- tax payroll deductions (retirement contributions, health savings account, health insurance premiums), and itemized deductions such as real estate taxes and mortgage interest. Making these adjustments now will help cash flow match what was projected during the divorce process and save the headache later of a tax surprise.

February 18, 2019

As we move into 2019, it’s helpful to know contribution limits and Social Security changes. Individual Retirement Accounts: The annual contribution limits for traditional and Roth IRA’s have increased to $6,000, a boost of $500 over 2018 contribution limits. The catch-up contribution limit for those age 50 and older remains at $1,000. 401(k)s: The annual contribution limits for 401(k)’s, 403(b)’s, most 457 plans, and the federal government’s Thrift Savings Plan have increased to $19,000, a boost of $500 over 2018 contribution limits. The catch-up contribution limit for employees age 50 or older in these plans stays at $6,000 for 2019. SIMPLE IRA: The limit for SIMPLE IRA’s goes up from $12,500 in 2018 to $13,000 in 2019. The catch-up limit remains the same at $3,000 for those age 50 and older. Health Savings Accounts: The “self-only” annual contribution limit will increase from $3,450 to $3,500 and the “family” annual contribution limit will increase from $6,900 to $7,000 in 2019. Social Security Updates:

Beneficiaries will see a 2.8% increase in payments
Maximum taxable earnings will increase to $132,900
Maximum benefit at full retirement age increases to $2,861 per month

February 3, 2019

It is important to review and discuss tax planning for the year in which a divorce was completed, especially for high earning individuals who receive incentive compensation and plan to be divorced by December 31, 2018. As part of the 2017 Tax Cuts and Jobs Act, many tax law changes became effective in 2018. One change was to the flat tax rate that is withheld by companies on incentive income such as bonus income, commission income, exercised stock options, and vested restricted stock. As of January 2018, the federal rate changed from 25% to 22%. The Minnesota state rate remains the same at 6.25%. Most highly compensated individuals have marginal tax rates above 22%, so tax on the above income types is under-withheld. To avoid an unpleasant tax surprise come April 15^th, be sure to address this potential additional tax liability and come up with a plan to handle it. Some options to consider are:

Estimate the tax liability now and include and allocate it as part of the property division.
Include language to share in the tax liability when return(s) are filed next year.
Consider whether it makes sense to load-up itemized deductions from the year to the higher earning spouse to help offset liability (i.e. real estate taxes, mortgage interest, charitable contributions).

January 27, 2019

One of the reasons that divorce is such a challenging life transition is its public nature. A couple might keep their problems private as they try to work through them. But if a rift opens that can’t be mended, the couple will have to share some very difficult news with friends and family as they separate from one another. Few of us will have to reveal emotional personal issues to as wide an audience as Jeff and MacKenzie Bezos recently did. The statement that Jeff released on Twitter suggests that he and MacKenzie are trying to make their split as amicable as possible by usin three insightful ideas that could help anyone struggling through a divorce.

Be open and honest with those closest to you.

“We want to make people aware of a development in our lives. As our family and close friends know, after a long period of loving exploration and trial separation, we have decided to divorce and continue our shared lives as friends.” Couples need privacy as they deal with strains on their marriage. But once a decision is made, clear communication with your family, friends, and each other will be very important. That goes double if any young children are in the picture. The more open a couple is about what’s happening, the easier it will be for you to find the outside support that will help you through this transition. Good dialogue might also help you and your former spouse to focus on the essential tasks at hand, like dividing your assets and updating your essential estate planning documents.

Be grateful.

“We feel incredibly lucky to have found each other and deeply grateful for every one of the years we have been married to each other. If we had known we would separate after 25 years, we would do it all again.” Shame, embarrassment, and guilt are common feelings associated with divorce. Playing the blame game or trying to “win” the divorce can quickly turn all those amicable best intentions into bitter personal and legal issues. Instead, the Bezos statement is a reminder that the end of a marriage – especially a long one – doesn’t erase all of the positive things that came before it. If an amicable divorce is possible in your particular situation, then don’t be ashamed or embarrassed. Cherish those precious shared experiences, like the birth of children, happy vacation memories, the difficult times you helped each other through. Embracing these feelings of gratitude will help ease both you and your partner through this process.

Focus on the positives ahead.

“We’ve had such a great life together as a married couple, and we also see wonderful futures ahead, as parents, friends, partners and ventures and projects, and as individuals pursuing ventures and adventures.” When we work through the $Lifeline exercise, we emphasis that important transitions like retirement, children graduating, weddings, and yes, divorces, are ends in one respect, but also new beginnings. They’re the start of new chapters in your life. That might be difficult to see when the pain of a divorce is still raw. But it’s important to open yourself up to new opportunities when they present themselves. You’re about to start your single life all over again. And yes, it’s scary. It may not be what you wanted. And you may be bitter. But over time, you may be able to see what awaits you on the other end. It could be traveling that you’ve longed for. Maybe you’ll relocate, start a new career, begin new hobbies, and meet new people. You might have more financial resources at your disposal to explore solo than you did when you were younger and unmarried. And you might approach these experiences with a more mature and grateful perspective, enjoying every minute just a little bit more fully. We want to help you through all of life’s major transitions, the positives as well as the challenges. If there’s change on the horizon, make an appointment to come in and review the $Lifeline exercise with us. We can help you plan ahead so that the next chapter of your life is the most fulfilling yet.

January 20, 2019

When a joint investment account is divided, the financial institute will use only one Social Security number to report the earnings and thus only one 1099 will be issued for that account. For example, following their divorce, Dick and Jane divided their joint investment account and transferred their own share into an individual investment account solely in their own name, on November 1^st. If the “primary” Social Security number on the joint account is Dick’s, he will receive one 1099 for the joint account earnings earned from January 1^st– October 31^st and a second 1099 for the individual account earnings earned on his individual account from November 1^st – December 31^st. And, Jane will receive only one 1099 for the individual account earnings earned on her individual account from November 1^st – December 31^st. If the goal is to share the tax liability for the joint investment account earnings, this can be accomplished in a few ways.

The tax liability is projected during the divorce process and an adjustment is worked into the property division.
The spouse who received the 1099 adds the investment income to their tax return and language is added to the decree outlining the agreement on how to share the tax liability at tax filing time.
The spouse who received the 1099 can “nominee”the correct portion of investment income to the other spouse by filing a 1099 and 1096 with the IRS and furnishing a 1099 to the other spouse.

October 22, 2018

It’s that time of year again, when the trees become bare and days grow short, that one’s thoughts turn to health insurance. That’s right, the open enrollment window for renewing your existing health insurance plan or shopping for a new plan opens November 1^stand runs through December 15^th, 2018. For Minnesota residents, shopping for insurance means contacting a health insurance broker to get help in comparing different plans. Or, for those whose income qualifies them for financial help, applying and enrolling on the MNSure website. For those who live in states without their own exchange, plans can be compared on HeathCare.gov, the federal government’s national exchange site. Choosing the right health insurance plan depends on your family’s health and understanding which cost-sharing arrangement works best for you. The cost-sharing arrangement is how much you want to pay monthly for the insurance premium plus how much you are comfortable paying out-of-pocket for a doctor’s visit or medical procedure. You can pay less on a monthly basis for your premium if you are willing to pay more out of pocket for a doctor’s visit or medical procedure. The most prominent cost-sharing component is the plan deductible. This is the amount you pay every year before the insurance company pays its first dollar. Choosing a lower deductible amount and pushing the costs onto the insurance company sooner will result in a higher premium. By choosing the maximum deductible allowed, $7,900 for individual plans and $15,800 for a family plans in 2019, you will pay a lower monthly premium. Picking a high deductible plan with a lower premium may make sense for a healthy person who never needs health services, as well as someone comfortable with paying the out-of-pocket amount. Other ways that insurance plans share the cost is with co-pays and coinsurance. A copay is a fixed dollar amount that you pay every time you visit the doctor. That amount may be $30 with a typical insurance plan but it will be lower or possibly waived for a more expensive plan. Coinsurance is where the cost of a medical procedure is shared. The typical coinsurance arrangement kicks in after you meet the deductible amount. Then, you pay 20%, for example, of costs until you reach the maximum out-of-pocket limit amount. Finally, the out-of-pocket limit is the maximum amount that you will pay. It is the sum of the deductible plus the copays or coinsurance that you pay in any given year. Once you hit this limit, the insurance company pays 100% thereafter. This amount is established each year by the government as part of the Affordable Care Act. As noted above, for 2019, the maximums are $7,900 for individual plans and $15,800 for family plans. Once you understand how cost-sharing works, the cost difference between plans comes down to the services and prescription drugs that the plans cover. All plans are required to cover emergency services, hospitalization and maternity care, as well as mental health and substance-abuse treatment, at a basic level. All plans also cover the cost of an annual check-up and preventive care services (such as immunizations and mammograms) with any level of deductible. More expensive plans will also cover a greater level of preventative services, and higher levels of service, such as brand name drug coverage instead of generic-only drug coverage. So, as you rake up the leaves and pull out the winter coats, take time to review your health insurance plan because health insurance season will soon be here!

June 1, 2018

Your divorce is over. It’s time to start sorting through all the things you need to do, to get your financial life in order. Here are just a few tips to help you thrive financially, as you move into this phase of your life. Pay Off Credit Card Debt One of the most important steps to achieve your financial goals is eliminating credit card debt. Start by paying off the balance of one credit card at a time, by either:

Paying off the highest interest rate credit card first, or
Paying off the smallest balance first, then applying that payment amount to the next smallest balance

And, always pay more than the minimum. Build an Emergency Fund Life has a way of throwing financial curve balls. To pay for these unexpected expenses, it’s important to have an emergency fund. A good rule of thumb is to set aside at least 3 to 6 months of expenses in a savings account earmarked for emergencies. This will keep the money “out of site, out of mind” and help reduce your stress level when financial emergencies pop up. Know Your Credit Score Despite its importance, many people don’t know their credit score. Credit scores assist lenders in determining the interest rate you’ll be charged, so you’ll want to know yours and work on improving it. To get your free credit report, visit www.annualcreditreport.com. Reviewing your credit report may also help you catch signs of identity theft early. Start Saving for Retirement We’ve all heard it before, but it truly is essential to start saving for retirement as early as possible. This is because you want to take advantage of compounding – generating growth not only on the original investment, but also on the return you’ve already earned on the investment over time. Compounding allows the potential for your initial investment to grow exponentially. Also, make sure you contribute at least enough to your company retirement plan to get our employer’s match. Don’t pass up free money! Create a Budget Although it’s not always fun, following a budget ensures you will have enough money for the things most important to you. A budget helps you find money to fuel your dreams. Refer to the attached Create Cash Flow* to help you put your budget together. One of the most important things to remember is to pay yourself first! Always set aside money for your emergency fund and retirement before any discretionary expenses. * a chapter from my book Ultimate Women’s Financial Guide to Thrive after Divorce All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.

February 3, 2018

Spousal support that lasts more than a couple years may be subject to cost of living adjustments (COLAs). This is negotiated as part of your divorce settlement. As the cost of living goes up, spousal support can increase as well, to meet its intent of maintaining the ex-spouse’s standard of living. Fortunately, the State of Minnesota’s Office on the Economic Status of Women (OESW) provides a booklet that contains a worksheet and instructions for calculating the cost of living increase for spousal support, as well as child support. The OESW’s A Guide to Child Support & Spousal Maintenance Cost-of-Living Adjustments also has template forms for notifying the paying ex-spouse of the increase and an Affidavit of Service by Mail form. Why an Affidavit of Service by Mail form? Because if the paying ex-spouse does not increase the support as requested, the affidavit is proof that they had been notified. All these forms and worksheets should also be filed with the court administrator where the decree was filed. This is a lot of paperwork, but OESW’s guide also has a checklist to make sure all of the involved parties get the correct documents. One additional piece of information needed to complete the COLA calculations is the Consumer Price Index Table. This table is also maintained and available for download at the OESW website. The index numbers on this table are used to show the increase in the cost of goods and services over time. These index numbers are used in the calculations to determine how much spousal support (and child support) should increase to keep up. The table shows over 20 years of data but, if one is being diligent about requesting increases, only the index numbers from the past couple of years should be needed. The Consumer Price Index Table contains sets of price index numbers: the CPI-U shows how much prices have increased on average for the entire United States; the CPI-U MSP shows how much prices have increased in the Twin Cities Metropolitan area. Your divorce decree will likely indicate which set of index numbers you should use. Note that while using the CPI-U MSP can most accurately reflect the increase in prices in Minnesota, this set is updated twice a year, in January and July, and it takes an additional month for the updated figure to be published. OESW’s A Guide to Child Support & Spousal Maintenance Cost-of-Living Adjustments is easy to follow and doesn’t require too many calculations. If you are not good at math or filling out forms, it is a good idea to get help from a financial professional or your family law attorney. Link to the Guide Link to the Consumer Price Index Table