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.

Steve and Marci have two very young boys. In the middle of their collaborative divorce in College Station, Texas, Steve and Marci needed to agree on who would have primary custody if they lived in different locations.

They came into the meeting prepared. They had agreed that Marci had the boys if she lived in Canada or the U. S. If she moves anywhere else, the boys stayed with Steve. With her company folding, Marci had already announced that she would take a job “anywhere in the world”.

Steve is intending to follow Marci and his boys to nearly anywhere in the U.S. or Canada, but not anywhere in the world.

I asked them if they wanted to define the United States. They thought that an odd question. Did they want to stick with the continental U.S. and exclude Hawaii and Alaska? They decided to include Alaska and ditch Hawaii.

Knowing Steve wanted to keep his sons on this continent, I asked him how he felt about Guam. He looked surprised and Marci said, “I could live there!”  Neither of them knew that Guam is a territory of the U. S. But then, they grew up in Eastern Europe where American geography and government were not strong subjects.

They agreed to define the U.S. as the lower 48 states plus Alaska. Had they not tightly defined the U.S., they could have ended up with Marci moving their sons to Guam or another U.S. territory.

I can hear the judge now, “Guam is part of the United States. You should have thought of that before you agreed to this.”

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.

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.

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.

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.

#1 If your bank and credit card statements include expenses for people who won’t be in your household next year, such as soon-to-be-ex-spouses, you need to avoid listing those expenses. Either estimate the costs that are only yours or tag the ones you know are not yours and cross them off.

#2 How do you estimate only yours when the costs on the statements are for both of you? Example:  Look at your monthly grocery costs. Think about who eats at home the most. If there are just two of you, allocate more than 50% of the grocery bill to that person. If there are more than two of you, estimate what percentage each person consumes. Subtract out the amount that is for the person who will not be in your future household. Do this for all expenses.

#3 If you think you are going to live in a different place after your divorce, use new information for certain household expenses. Use your current housing expenses as a springboard to your estimated future expenses. Example: Your cable internet bill may not change, but your yard care costs could.

#4 If you know you are going to move but you don’t know where yet, do some research and, aackk!, guess a little.  Find homes or apartments that look like a possible option for you. Ask the landlord for the annual utility costs. Find people who live in similar places and ask them about their annual lawn care costs.

I have created a good spreadsheet for budgeting. If you want a copy, send me an email with the words “Budget Spreadsheet” in the subject line. I’ll send you one – free.

Here are some tips to correctly figure out your cash flow needs whether during or after your divorce or even if you are not getting a divorce.

#1 Create a list of 12 months of expenses. You can get the number for monthly expenses by dividing that by 12. Always start with a whole year to capture everything.

#2  Your list needs to include expenses that repeat every month, items that repeat only a few times a year, items that occur only once a year and  items that occur only once every few years.

#3  Get copies an entire year’s worth of all your bank statements and credit cards. Use every item to add up your expenses in various categories.  This is a long and tedious task. But it results in the most accurate information.

#4  If tip #3 made you shout “No Way!” then take the dangerous short cut and use 3 months of statements. But know your risks. You will multiply your monthly expenses by 4 to get a full year. Watch out for those twice a year expenses that fall into those 3 months you chose. Don’t multiply them by 4. I had a client who did that and her budget ended up way, way too high.

#5  If you use less than 12 months of data, comb through your statements and find the expenses that did not fall into those 3 months you chose. Add those missing costs in.

#6  Remember to budget an amount for monthly savings. Stuff breaks, stuff falls apart. You will need that savings to avoid charging car repairs on your credit cards.

I have created a good spreadsheet for this exercise. If you want a copy, send me an email with the words “Budget Spreadsheet” in the subject line. I’ll send you one – free.

One of the tricky steps is to remember to add lines for those expenses that do not occur every month. The cost of gifts is one that people frequently underestimate. To get it right, make a list of the friends and relatives you give gifts to each year. Birthday. Holiday.  And then start listing the not-so-regular gifts such as graduations, weddings, hostess gifts, dinner party gifts, etc. Remember the cost of cards, gift bags, wrapping paper and bows.

Other occasional costs are tires, auto insurance, vehicle registration, insurances, holiday decorations, holiday groceries. And the list goes on.

“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.