When it comes to figuring out your future finances after your divorce is final, a Certified Divorce Financial Analyst is trained to look at the big picture. That’s why an individual’s Social Security Statement can be a valuable resource in your divorce financial planning.
Here’s why:
Earnings and employment history.
Your Social Security Statement is a great place to look for historical employment earnings. It is valuable to understand the earnings history and trajectory of both parties in a divorce. If tax returns and other documentation are being withheld by your spouse, the Social Security statement can provide a valuable baseline.
Estimated retirement and disability benefits for long term, post-divorce financial planning purposes.
Understanding the long-term cash flow is very important when negotiating a financial settlement. Having details of the Social Security administration’s estimated benefits can help us understand your future cash flow and plan more effectively for the future.
If there is a public pension.
A worker who participates in governmental retirement systems may not have paid into the Social Security system; some may pay into Medicare but not Social Security. You can see this if the worker’s statement has wages in the Medicare taxed earnings column but not the Social Security column. Using the Social Security statement, we can uncover the existence of a previously undisclosed pension.
Derivative benefits available to a former spouse.
In a marriage over ten years you can receive derivative benefits on the record of your former spouse. The derivative benefit is equal to one half of the former spouse’s benefit which can be found on their annual statement. This is useful for long-term planning and can be important in long-term spousal support negotiations.
Social Security and Medicare tax details.
We often need to estimate incomes for negotiation purposes. A common mistake occurs when the 6.2% Social Security tax is applied to the worker’s entire income. Instead the tax should be applied up to the maximum wage base for Social Security taxes. If you apply the tax to $300,000 of income the net, after tax income will be understated by over $10,000 per year.
Possible application of Government Pension Offset Provision (GPO) or Windfall Elimination Provision (WEP).
Those workers mentioned in #3 above may find themselves subject to the GPO or WEP and end up receiving less benefits than they expected if not careful. It is always important to understand how these government provisions affect an individual in divorce.
Existence of tax deferral vehicles such as deferred compensation plans and retirement accounts.
If the numbers reported under Medicare wages don’t match those reported in the Social Security earnings column there may be tax deferral vehicles like deferred compensation plans that are being used. The worker may also have simply hit the wage base maximum after which Social Security taxes are no longer incurred but Medicare taxes are.
Misreported income.
In some states, an individual involved in divorce proceedings must file a declaration of disclosure detailing their income and expenses and sign it for accuracy under penalty of perjury. This doesn’t keep people from reporting incorrect figures. If the Social Security Statement doesn’t match what is reported on the declaration there better be an explanation.
The Social Security Administration is provides an online version of taxpayers’ statements. The online version is now available at www.socialsecurity.gov/mystatement.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.
Lou Falvo is a Certified Divorce Financial Analyst® and CIMA® (Certified Investment Management Analyst) who assists clients by evaluating the tax and financial aspects of divorce. Lou is dedicated to reducing the burden of each client by thoroughly examining the financial elements of the client’s divorce, with a keen focus on what is in his or her best interests. Contact Lou to find out how he can assist you with your divorce proceedings at lfalvo@crossroadsdivorce.com or (585) 542-2382.