retirement plans Archives - Tracy Stewart, CPA

How divorce after 50 may affect retirement

February 24, 2015 by Tracy Leave a Comment

Fact: 30% of divorced women over the age of 62 who are still single live at or below the poverty line, according to research by Susan Brown, a professor at Bowling Green State University who has chronicled “gray divorce” throughout the years.

If we were to compare that to married couples in the same age demographic, only 4% live at or under the poverty line.

I just did a piece for the Chicago Tribune and Janet Kidd Stewart on divorce and retirement benefits – and why I think collaborative divorce may be the single best decision divorcing couples over 50 can make. Aside from the fact that collaborative keeps your divorce civil, respectful and private, the process also works to address your immediate and long-term financial needs (including those retirement years). [Read more…]

3 Steps to Being Financially Smart in Divorce

April 19, 2014 by Tracy Leave a Comment

Being smart about you money before and during a divorce can make the difference between living a lower lifestyle and living your current lifestyle. There are tons of financial details to be aware of during your divorce. But if you nail down the basics, those details will fall into place more easily.

Basic Step #1: Be completely organized. Create logical files for all your financial information. Create a balance sheet – a list of everything you own and everything you owe and include copies of proof, such as mortgage statements, property tax statements and retirement account statements. Assemble the last twelve months of all credit card and bank statements. Being complete will save you time and professional fees down the road.

Basic Step #2: Hire a divorce financial advisor. Having a financial advisor on your team means that you will have an objective expert to see the things that your emotions block. To survive financially, you need to recognize the good news and the bad news. To recognize them, you need an expert to explain them to you. Much of the financial issues in divorce include little known gotchas. Don’t let those bite you.

Basic Step #3: Don’t listen to your friends. They have the best intentions, but they also are not experts in your divorce. If their claim to expertise is their own divorce, you are getting slanted advice. Your divorce is different. They are all different in quiet but crucially detailed ways. Be careful to avoid the wrong advice.

Don’t be Fooled by Your Spouse’s TRS Statement!

May 20, 2013 by Tracy Leave a Comment

Texas TRS pensions are commonly seen in Brazos County divorces. If your spouse has a TRS pension and you are in a divorce, don’t be tricked into thinking the account balance on the annual statement is the value of that pension benefit.

The account balance on the front of the TRS Annual Statement of Your Member Account is merely the amount your spouse has contributed to the account plus the amount the state of Texas has contributed to the account plus the interest earned on the account. In contrast, the value of the account (known as the present value) is the amount of money that would need to be invested today so as to have enough to fund the retirement pension payments starting on the retirement date and going through the estimated lifetime of the retired employee.

Calculating that value involves complex mathematics. I will spare you those details. But it is good to know that pension values are calculated using standards from the Actuarial Standards Board, specifically Actuarial Standard of Practice Number 34.

The amount of money it will take to pay out that pension is significantly greater than the account balance shown on the annual statement. The longer the employee has been contributing into the TRS pension plan, the bigger the pension benefit present value will be.

Why should you care? Because the bigger your spouse’s pension value, the more there is to share in the divorce property settlement. This is true for any pension, not just a TRS pension.

If your family property includes a pension, feel free to contact me with your questions. I can also refer you to the best local Brazos County attorney to meet your individual divorce needs.

Six Rules for Social Security and Divorce

September 14, 2011 by Tracy Leave a Comment

If you are divorced and were married at least 10 years to your ex-spouse, you are entitled to a spousal or survivors Social Security benefits.

The following is from the 2011 AICPA CPA’s Guide to Social Security Retirement Benefits.

For ex-spouses …

You must have been divorced from this ex-spouse for at least 2 years before you can apply for the benefits.
You have not remarried before you turn age 60.
If you remarry before age 60, you will still qualify for the survivors benefit if your subsequent spouse dies or ends your marriage in divorce before you apply for the survivors benefit.
Your benefits as an ex-spouse do not change or affect on what children or new spouse (with your ex) could obtain.
As an ex-spouse, you can start collecting spousal benefits before the working spouse has begun taking his/her benefits.
If you remarry before age 60, you get to choose the better Social Security spousal benefits. You can compare your benefits under the ex-spouse rules and the current spouse rules and then pick the best.

For more information, check out the Social Security website.

Divorcing? Will you be able to retire?

September 9, 2011 by Tracy Leave a Comment

Four in ten Americans are at risk for not being able to maintain their lifestyle in retirement. Are one of them?

If you are contemplating anything other than a collaborative divorce, you won’t find the answer in that process. In fact, you will have more chance of being one of those four people after your divorce.

In the collaborative divorce process, you get to have a neutral CPA on your team. For less money and more expertise, your neutral CPA will quickly and effectively do the financial work. Attorneys are not quick and effective with numbers. They also don’t give financial advice. One thing your neutral CPA can do for you is analyze your chances of being one of those four Americans.

All my collaborative clients are worried about their financial future. Divorce is scary. Divorce is an unplanned large expense. Will you be able to retire? Will your children get to go to college? Will you be able to live like you have been?

These are all questions that your neutral collaborative divorce CPA can address.

Don’t be one of the four Americans who are looking at a reduced retirement lifestyle. Get your answers now.

Get Reasonable About Spending After Divorce

September 1, 2011 by Tracy Leave a Comment

I recently had a few divorce cases where the couples spend more than they can afford. The crazy thing is that they refused to see how dangerous this is.

I read in the news that Americans are saving more and spending less. Not divorcing Americans. Don’t these people want to retire some day?

Hello, readers! If you are facing divorce and are not a billionaire, then you are going to need to cut back on your spending. I’m sure you feel you deserve to keep your current lifestyle. Odds are that your current lifestyle wasn’t sustainable anyway.

I’m talking about people with incomes ranging from modest to a million dollars a year.

Are you socking away 10% of your income? If not then review your spending. Look for ways you can cut back. Examine your spending habits and then cut back.

Stop getting manicures and pedicures. Do them yourself. The more you do them, the better you get at it. Invite girlfriends over and make it a party.

Are you overpaying for insurance? My husband and I had our insurance reviewed last month and saved $500 a year.

Look at your summer clothes. Did you wear them all? Take the ones you didn’t wear to a consignment shop.

Will Divorce Ruin your Retirement Plans?

April 18, 2011 by Tracy Leave a Comment

Is your divorce going to postpone your retirement? Are you going to have to give up your dreams of relaxation or travel?

In College Station and Houston, stalled retirement plans are common in the list of divorce financial concerns. Your spouse is trying to get all the IRAs. Your spouse won’t share the pension. Even if you could get your spouse to listen to you and agree to share, half the nest egg might not be enough for your retirement.

You can use an retirement shortfall calculator to project when you will be able to retire. (You can also find these calculator links on my blog under Website Links.)

Tips for using the calculator:

Before you start popping numbers in the boxes, first read the “Definitions”. They really do matter.
Rates of return – choosing the number for this box is like using a crystal ball. I recommend that you fill in all the other boxes first and then work on this one. First put in 2% and see the result. Then put in 4% and see how the result changes. Take it up to 8%. It looks better there, doesn’t it? Actually getting your estimated rate of return in real life is a whole different matter.
Federal tax rate – this is your “marginal” tax rate, the rate of tax on your highest taxed dollar. Calculate that with a Marginal Tax Rate Calculator.
Number of years in retirement – assume you will live 10 years longer than the age of your longest living parent or grandparent or age 95.
Expected inflation rate – use 3.0% or use the default of 3.1%.

Warning: Many people avoid thinking about retirement. Don’t do that. We see lots of articles about inadequate retirement savings in many households. Divorce can make this situation worse. Reverse that trend by educating yourself now.

Everything Shrinks in Divorce Except Expectations

April 13, 2011 by Tracy Leave a Comment

This weekend I read an interesting article in the Wall Street Journal, The Incredible Shrinking Everything by Joe Queenan. He tells us that nearly everything is shrinking. Yeah, yeah. I knew about the juice containers shrinking. What I hadn’t realized were the shorter solos by Eric Clapton and the lower basketball scores from 2000 to 2011. Shrinkage.

His column reminded me of the shrinkage I see in my business. Bank accounts shrink. Patience shrinks. Lifestyles shrink. What surprises me is the frequently unrealistic optimism of people in divorce.

Sure, everyone is hurt and angry and scared. But they are strangely optimistic (or blind) about their financial future. They really don’t grasp how much their financial security will shrink when they create two households from one.

Nobody likes to cut back on their lifestyle. Not even the wealthy. It’s hard to do. I have come to the conclusion that we humans have great difficulty accurately imagining negative change. We can talk about it. We can rationalize the change. But we can’t seem to feel it until it hits us between the eyes.

So, how does this relate to divorce financial planning? I recommend that if you are considering divorce, you financially pretend you already are there. First you have to figure out your post divorce cash flow. Then you have to actually live on less income for a while. Try it out for a month. Eat out less. Don’t buy those shoes. Shop for store brand items. Clip coupons. Live the shrinkage. It will make your divorce just a little bit easier to handle. You will be better prepared for financial reality.

Even in Divorce Advice, There are No Crystal Balls

January 7, 2011 by Tracy Leave a Comment

A client asked me the other day to predict the future balance in her soon-to-be-ex-husband’s retirement account. I’d like to share with you my answer to her.

“No.”

There are no crystal balls in divorce advice. Here is a partial list of questions for which I would need answers before doing this task.

What will be his retirement plan contributions in the future? What if he changes them?

How much will his employer match? Will the match rate change?

Will he lose his job and stop contributing to the account?

How will he choose investments for the account? Will he hire an advisor? Will he do it himself? Will he switch between the two? How will that affect his investments?

What will his investments be? Mutual Funds? Bonds? Stocks? How many of each?Which funds? Which bonds? Which stocks? When will he buy them? When will he sell them?

How will the markets perform?

Will he buy low and sell high? Or will he buy high and sell low? A combination of both?

Okay, I get it that she wants to know how rich he is going to be years after the divorce. As my husband would say, it’s just one of those great mysteries in life.

Don’t Let a Judge Do This to You

June 4, 2010 by Tracy Leave a Comment

A divorcing couple lived in a state that did not enjoy the option of the collaborative law divorce model. They chose to hire litigious attorneys and let the attorneys do the fighting while they retreated to their respective corners, never talking to each other, or so they claimed. (They have three little children, so they must have talked about exchanging them each week.)

Of course, they could not agree on how to divide their property. They had a modest income, a modest house, very little cash, some credit card debt and a couple of retirement accounts. Had they worked collaboratively and with the assistance of a CPA who understands the nuances of divorce financial issues, they could have divided their property in a way that would have achieved both their goals.

This couple eventually ended up in front of a judge, having spent all their cash on their divorce attorneys and even further under credit card debt. The judge divided the property and debts in a manner that he, no doubt, felt was fair and equitable. Unfortunately, is was not financially wise nor was it creative.

This judge divided the property and debts in an overall 60/40 split, with the greater share going to the wife. The husband was granted the home and ordered to pay the wife for her share of the home … with cash and pretty darned quickly, too. His Honor did not inquire as to how the husband was going to get his hands on this $60,000 of cash. He did not inquire as to whether the husband will qualify for a refinance mortgage. Perhaps he did not care. Perhaps he was tired of settling marital disputes for angry, emotional couples who foolishly refuse to talk to one another.

If the husband cannot qualify for a refinance mortgage, he will retain the existing mortgage and the ex- wife’s name will remain on that mortgage obligation. She may be unable to buy a home for herself. Her credit will be tethered to that of her ex-husband as long as her name is still on that mortgage. What mortgage company will wish to give this woman (with a very modest income) a mortgage when she already has one? Furthermore, the husband will have to cash out a sizable portion of his retirement to pay off the wife, incurring unnecessary and avoidable income taxes and penalties.

To me, this is a sad story. This financial debacle was avoidable with collaborative efforts and the aid of a CPA with financial planning expertise, such as a PFS designation. Particular knowledge in divorce issues is a plus. If you are contemplating divorce or in the midst of divorce, stay out of the courtroom. If for no other reason, do it for your own financial security.