{"id":3694,"date":"2020-03-24T06:00:52","date_gmt":"2020-03-24T13:00:52","guid":{"rendered":"http:\/\/springwaterwealth.com\/?p=3694"},"modified":"2020-07-30T22:22:24","modified_gmt":"2020-07-31T05:22:24","slug":"financial-planning-for-divorced-women-know-what-you-may-be-entitled-to-financially","status":"publish","type":"post","link":"https:\/\/springwaterwealth.com\/financial-planning-for-divorced-women-know-what-you-may-be-entitled-to-financially\/","title":{"rendered":"Financial Planning for Divorced Women: Know What You May be Entitled to Financially"},"content":{"rendered":"<p>The dissolution of a marriage is often a very stressful and challenging process, and decisions on dividing assets can often exacerbate things. Understanding what you\u2019re entitled to financially can help mitigate this stress and will help give you a clear picture of what your post-divorce financial life will look like.\u00a0 Let\u2019s review a number of financial resources to which you may be entitled, and which will help you with <strong><a href=\"http:\/\/springwaterwealth.com\/the-financial-impact-of-divorce-on-women-5-challenges-youll-face\/\" target=\"_blank\" rel=\"noopener noreferrer\">financial planning as a divorced woman<\/a><\/strong>.<\/p>\n<h2>Spousal Support<\/h2>\n<p><strong><a href=\"https:\/\/www.legalmatch.com\/law-library\/article\/spousal-support-or-alimony.html\" target=\"_blank\" rel=\"noopener noreferrer\">Spousal support<\/a><\/strong>, also known as\u00a0<strong><a href=\"https:\/\/www.legalmatch.com\/law-library\/article\/how-to-receive-alimony-in-new-york.html\" target=\"_blank\" rel=\"noopener noreferrer\">alimony<\/a><\/strong>, involves one ex-spouse paying the other a certain sum of money, usually on a monthly basis. A court may require spousal support payments when one of the divorcing parties is financially more stable than the other, and the other party needs some support to get their post-divorce life restarted.<\/p>\n<p>Spousal support is awarded on a case-by-case basis, and the analysis is different in every situation. \u00a0Generally, you\u2019ll only qualify for spousal support if you\u2019ve been involved in a marriage of \u201clonger duration\u201d \u2013 typically 5 years or more.\u00a0 In addition to the length of your marriage, the court will typically also take into consideration the following, when making the calculation to determine the amount of support:<\/p>\n<ul>\n<li>The earning capacity of each spouse<\/li>\n<li>The assets and property owned by each party<\/li>\n<li>Whether one party is significantly in debt<\/li>\n<li>Whether the parties owned a business together<\/li>\n<li>Each party\u2019s contribution to the relationship \u2013 for example, in terms of education, career(s), raising children<\/li>\n<li>Whether a prenuptial agreement addressed the subject of spousal support<\/li>\n<li>Factors such as mental and physical health conditions<\/li>\n<\/ul>\n<p>For decades prior to 2019, the tax deductibility of alimony was a key element in <span style=\"color: #00bbff;\"><strong><a style=\"color: #00bbff;\" href=\"http:\/\/springwaterwealth.com\/a-womans-guide-to-financially-survive-a-divorce\/\" target=\"_blank\" rel=\"noopener sponsored noreferrer\">divorce planning<\/a><\/strong><\/span>.\u00a0\u00a0 The payor was able to deduct his\/her payments for income tax purposes, and the recipient spouse paid tax on them. This allowed divorcing couples to shift taxable income from the higher-income spouse to\u00a0the spouse in a lower tax bracket. Shifting income from a high tax bracket to a lower tax bracket lowered the overall tax burden, leaving more money available for the two households combined.<\/p>\n<p>However, the <strong><a href=\"https:\/\/www.investopedia.com\/taxes\/trumps-tax-reform-plan-explained\/\" target=\"_blank\" rel=\"noopener noreferrer\">Tax Cuts\u00a0and\u00a0Jobs Act<\/a><\/strong>, a tax law\u00a0enacted by Congress in\u00a02017, permanently eliminated the\u00a0tax deduction\u00a0for\u00a0alimony\u00a0payments made for those divorcing in 2019 and later. Alimony\u00a0recipients are no longer required to pay\u00a0tax\u00a0on their\u00a0alimony\u00a0payments or include them in income.<\/p>\n<p>At the state level, tax treatment varies.\u00a0 California, for example, still allows the payor to deduct spousal support payments for state income tax purposes, and the recipient to pay tax on the income, while others, such Oregon, follow the 2019 federal treatment. Non-deductibility makes spousal support tax-neutral, similar to the way child support is treated.<\/p>\n<p>At first glance, this may seem like good news for the recipient.\u00a0 After all, not having to pay tax is great, right? However, the practical effect is likely to be that in many cases the payor will owe more in tax but pay less support, and the recipient will not owe any tax but will receive less support.\u00a0 Both parties will have less (after-tax) money to spend.<\/p>\n<p>So, what strategies can divorcing couples use to recreate some of the old tax benefits of spousal support payments?<\/p>\n<p>One option is to think strategically when dividing marital assets.\u00a0 If you\u2019re in a lower tax bracket than your ex-spouse, you can sell investments (like stocks, bonds and mutual funds) to generate income and pay much less in tax than they would.\u00a0 Your ex could then use their income that they would have otherwise paid out to you in alimony to buy more investments.<\/p>\n<p>A one-time transfer of marital assets instead of ongoing spousal support payments can also be attractive beyond the potential tax savings.\u00a0 It can allow for a cleaner break, helping both of you move on more quickly.<\/p>\n<p>You should also keep in mind that the law may change again.\u00a0 So, it would make sense to add a provision for future tax law changes in your marital settlement agreement, with specifics about what can and cannot be modified.\u00a0 There are elements in the 2017 law that are set to expire in 2025 that make keeping your marital home more expensive and taking your children as tax exemptions less attractive.\u00a0 All the more reason to work with an experienced attorney.<\/p>\n<h2><strong><a href=\"http:\/\/springwaterwealth.com\/contact-us\/\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"color: #00bbff;\">Need guidance\u00a0<span style=\"caret-color: #00bbff;\">financially preparing for or navigating a divorce?<\/span>\u00a0 Contact our team at Springwater Wealth today to learn how\u00a0<\/span><\/a><span style=\"color: #00bbff;\"><span style=\"caret-color: #00bbff;\">we can help.<\/span><\/span><\/strong><\/h2>\n<p>&nbsp;<\/p>\n<h2>Child Support<\/h2>\n<p>Child support is determined through a calculation that follows legal guidelines. The guidelines take into account many factors, including the incomes of the parents, other children the parents have to support, parenting-time schedules, and work-related day care costs for the children.<\/p>\n<p>In addition to the amount given by the guidelines, one or both parents must cover the cost of the child\u2019s health insurance, medical care, and childcare. Other factors like the child\u2019s educational needs may also increase or decrease the amount of support.<\/p>\n<p>The amount of support depends on the child\u2019s needs and the parents\u2019 ability to pay. The state sets a baseline amount of support according to the child support guidelines. These guidelines are simply a function of the parents\u2019 available income and the number of children needing support.<\/p>\n<p>Typically, both parents are responsible for child support. However, generally only the non-custodial parent makes payments. The custodial parent remains responsible for child support too, but the law assumes that the custodial parent, who has the most time with the child and is primarily responsible for day-to-day care, spends the required amount directly on the child (or children). Payments continue until the child is 18 or longer if the child is enrolled at least half time in a school or training program.<\/p>\n<h2>Pension Plans<\/h2>\n<p>A\u00a0pension earned during marriage is generally considered to be a joint asset of both spouses. However, it\u2019s up to\u00a0the divorce courts in your state to decide whether and how pension assets are to be split, and whether survivor benefits are payable.\u00a0 If you\u2019re divorced, a court order is needed to receive a share of a pension.\u00a0 This court order is called a \u201cdomestic relations order\u201d.<\/p>\n<p>Most retirement plan administrators will pay benefits from a divided pension directly to you if the domestic relations order meets certain requirements.\u00a0 For private retirement plans, a domestic relations order that satisfies these requirements is called a \u201c<strong><a href=\"https:\/\/www.investopedia.com\/terms\/q\/qdro.asp\" target=\"_blank\" rel=\"noopener noreferrer\">Qualified Domestic Relations Order<\/a><\/strong>\u201d, or QDRO (pronounced \u201cquad row\u201d).<\/p>\n<p>In most cases, the payments you receive from a divided pension can be paid for the life of the employee\/retiree, and also after death (whether it occurs before or after retirement).\u00a0 Note, however, that some state and municipal pension plans won\u2019t make direct payments to former spouses.<\/p>\n<p>The rules for the division of pensions resulting from a divorce are complex, and they vary from state to state, and from pension plan to pension plan.\u00a0 Your rights to a share of your ex-spouse\u2019s pension may also depend on when your divorce occurred.<\/p>\n<h2>Retirement Accounts<\/h2>\n<p>If you\u2019re planning to get divorced, and your spouse has an employer-sponsored retirement plan account like a 401(k), 403(b), Thrift Savings Plan or profit sharing plan, you\u2019ll be entitled to a share of the account balance, unless you have a prenuptial agreement that says otherwise.\u00a0 Note though, that if you have a retirement plan account, your spouse is also legally entitled to a share of yours.<\/p>\n<p>As with a pension plan, a retirement plan account will be divided using a Qualified Domestic Relations Order, or QDRO.\u00a0 The QDRO provides you with a degree of protection that the marriage settlement agreement doesn\u2019t.\u00a0 It will allow funds in the retirement plan account to be split, and your share to be transferred to an account (typically an Individual Retirement Account, or IRA) in your name, without penalty.<\/p>\n<p>While retirement plans often have standard forms that your attorney can use to draft the wording of the QDRO, you may want to consider hiring a lawyer who specializes in this area.<\/p>\n<p>Your lawyer should carefully review the retirement plan\u2019s Summary Plan Description and other plan documents, because the QDRO\u2019s terms must align with the terms and conditions of the retirement plan. Defined contribution plans\u00a0like 401(k) and 403(b) plans are different than defined\u00a0benefit pension plans, another reason it may be helpful to hire an attorney who specializes in this area.<\/p>\n<p>Amounts added to retirement plan accounts during your marriage are considered marital property, which means that both you and your spouse have a right to them.\u00a0 However, if either of you already had funds in a retirement account before you married, those dollars are typically treated as separate property in a divorce \u2013 treatment will vary from state to state.<\/p>\n<p>As you plan your financial life post-divorce, you\u2019ll want to have a clear understanding of what your share of retirement assets will be.\u00a0 These assets will determine some or all of your income in retirement.<\/p>\n<p>You may also not be able to avoid tapping into the funds in these accounts before retirement, if you haven\u2019t worked for some time.\u00a0 You may plan on going back to work, receiving spousal support or child support after your divorce, but you may need to rely on retirement account assets for supplemental income until your financial situation stabilizes.\u00a0 You should be aware that <strong><a href=\"http:\/\/springwaterwealth.com\/tax-efficient-retirement-withdrawal-strategies\/\" target=\"_blank\" rel=\"noopener noreferrer\">withdrawals from retirement plan accounts<\/a><\/strong> before age 59 \u00bd could be subject to a 10% early withdrawal penalty along with state and federal income tax.<\/p>\n<h2>Social Security<\/h2>\n<p>From its creation during the administration of President Franklin Roosevelt, Social Security has given spouses and\u00a0<strong><a href=\"https:\/\/www.ssa.gov\/planners\/retire\/divspouse.html\" target=\"_blank\" rel=\"noopener noreferrer\">ex-spouses<\/a><\/strong>\u00a0a claiming right to retirement benefits. As a divorced woman, it\u2019s critical to understand the nuances of the Social Security system, and how you can maximize your benefit.<\/p>\n<p>Depending on your circumstances, you can receive either:<\/p>\n<ul>\n<li>\u201cretired worker\u201d benefits, which are based on your own\u00a0<strong><a href=\"https:\/\/www.ssa.gov\/planners\/credits.html\" target=\"_blank\" rel=\"noopener noreferrer\">covered earnings<\/a> <\/strong>history;<\/li>\n<\/ul>\n<ul>\n<li>\u201cauxiliary\u201d benefits, which are determined by your living or deceased former spouse\u2019s covered earnings history; or<\/li>\n<\/ul>\n<ul>\n<li>a combination of both.<\/li>\n<\/ul>\n<p>So, as a divorced woman, your Social Security retirement benefit depends not only on your own earnings history, but also to a large extent on your marital history and the earnings histories of your previous spouse(s). Furthermore, a divorced person with multiple marriages could receive an auxiliary benefit from any of their former spouses.<\/p>\n<p>Although you might describe yourself as divorced, at retirement you may receive a divorced spouse benefit, a surviving divorced spouse benefit, or a widow benefit from Social Security.<\/p>\n<p>The following flowchart can help you navigate the complexities of claiming Social Security as a divorced retiree.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-3695 size-full\" src=\"http:\/\/springwaterwealth.com\/wp-content\/uploads\/2020\/03\/Am-I-Eligible-for-Social-Security.png\" alt=\"Am I Eligible for Social Security Springwater Wealth Management\" width=\"1794\" height=\"1386\" srcset=\"http:\/\/springwaterwealth.com\/wp-content\/uploads\/2020\/03\/Am-I-Eligible-for-Social-Security.png 1794w, http:\/\/springwaterwealth.com\/wp-content\/uploads\/2020\/03\/Am-I-Eligible-for-Social-Security-1280x989.png 1280w, http:\/\/springwaterwealth.com\/wp-content\/uploads\/2020\/03\/Am-I-Eligible-for-Social-Security-980x757.png 980w, http:\/\/springwaterwealth.com\/wp-content\/uploads\/2020\/03\/Am-I-Eligible-for-Social-Security-480x371.png 480w\" sizes=\"(min-width: 0px) and (max-width: 480px) 480px, (min-width: 481px) and (max-width: 980px) 980px, (min-width: 981px) and (max-width: 1280px) 1280px, (min-width: 1281px) 1794px, 100vw\" \/><\/p>\n<p>Before claiming Social Security, you should consider consulting a qualified tax advisor or financial planner.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The dissolution of a marriage is often a very stressful and challenging process, and decisions on dividing assets can often exacerbate things. Understanding what you\u2019re entitled to financially can help mitigate this stress and will help give you a clear picture of what your post-divorce financial life will look like.\u00a0 Let\u2019s review a number of [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":3703,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_mi_skip_tracking":false,"footnotes":""},"categories":[150,3,6,10],"tags":[154,151,156,126],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts\/3694"}],"collection":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/comments?post=3694"}],"version-history":[{"count":0,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/posts\/3694\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/media\/3703"}],"wp:attachment":[{"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/media?parent=3694"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/categories?post=3694"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/springwaterwealth.com\/wp-json\/wp\/v2\/tags?post=3694"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}