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.

He and his attorney told Angie and her attorney that the alimony in his offer is non-taxable. Angie would get to keep the entire lump sum and none of it would be taxable. Great. Angie considered the lump sum in relation to her cash needs. Looks good.

But, when the agreement was typed up for signatures, it said that Angie was getting her lump sum alimony money from Herman’s IRA account. Herman was going to transfer that IRA money to Angie. He was not going to withdraw it, pay the income tax due and then hand it to Angie. That meant Angie would have to pay income taxes on her alimony when she withdraws it from the IRA.  When I point this out to her, she and her attorney are no longer happy.

Surprises are not fun in divorce proceedings. Angie and her attorney started packing their stuff, ready to walk out.

I sat down with Herman and his attorney to try to figure out how he could give Angie a lump sum that will not be taxable to her. After all, he had offered that to her.

He didn’t want to part with any of his cash-in-bank. So, we scoured his IRA and discovered that it included a large chunk of post-tax contributions. This meant that Herman could use the post-tax contribution money for the lump sum alimony. Angie would not have to pay income tax on the alimony money she withdraws from the IRA. Angie and her attorney were back to happy.

Income taxes are hidden in all kinds of places. Be careful.

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.

CSFP (Chartered Senior Financial Planner) Requires minimum of 2 years experience directly or indirectly within the insurance, security or banking industry OR 2 years having been licensed within the insurance or security industry. Experience requirement is waived if you are an attorney or CPA. Three day review course and two-hour exam.

EA (Enrolled Agent) A tax professional licensed by the Federal government, who can represent a taxpayer before the IRS. Must pass a two-day exam and clear the IRS background check OR be employed by the IRS for 5 years in a position that required the application and interpretation of the Internal Revenue Code and regulations.

CWM (Certified Chartered Wealth Manager) Granted from by the American Academy of Financial Management (AAFM), which grants no less than 18 designations. According to the website no exam is required for any of the 18 designations. Let’s save some space here and I’ll just list the other 17 designations:

CAM (Chartered Certified Asset Manager)

MFP (Master Financial Planner)

AFA (Accredited Financial Analyst)

CPM (Certified Chartered Portfolio Manager)

CRA (Chartered Certified Risk Analyst)

CTEP (Chartered Trust and Estate Planner)

RFS (Registered Financial Specialist)

CMA (Chartered Market Analyst)

CCA (Chartered Compliance Analyst)

CAMC (Certified Anti-Money Laundering Consultant)

CAPA (Certified Asset Protection Analyst)

CEC (Certified E-Commerce Consultant)

MCP (Management Consultant Professional)

CTS (Certified Transfer Pricing Specialist)

MPM (Master Project Manager)

CITA (Certified International Tax Analyst)

RBA (Registered Business Analyst)

I think this is probably enough to give you an idea of how many light weight credentials are out there. You can check on the credentials of any financial advisor at FINRA. Click on “Please select a record” and you will see a drop down list of credentials. Or enter the initials in the search field. Easy peasy.

CLU (Chartered Life Underwriter) This is generally thought of as the highest professional designation for a life insurance agent. They must have extensive experience and courses from The American College.

ChFC (Chartered Financial Consultant) These are typically insurance agents with several years of experience. They have passed courses in financial planning from The American College and want to expand their business into other kinds of financial planning.  They may also have a CLU credential because the academic requirements are the same.

CDFA (Certified Divorce Financial Analyst) These folks have to pass an exam and take 20 hours of continuing education every two years. I have this designation. It focuses on the sub-specialty of divorce financial planning. On its own, it is not a heavy weight credential. Look for a certificate holder who is also a CPA, CFP or both.

CSA (Certified Senior Advisors) To get this, you need to pass a 150 multiple choice question exam and have some experience or training in working with seniors. According to the WSJ report, in 2007, the Society of Certified Senior Advisors “began requiring CSAs to disclose to clients that ‘the CSA designation alone does not imply expertise in financial, health or social matters,’ among other things.”

And more to come…

Credentials help advisers make more money. Jason Zweig and Mary Pilon in a Wall Street Journal note that according to a “2007 study by the Financial Industry Regulatory Authority (Finra), 46% of older investors are more likely to accept financial guidance from someone with a professional designation – and 17% of investors would be more receptive to advice from a ‘certified adviser for senior investing,’ even though such a credential doesn’t exist.”

Here are a few of the 210 for you to think about.

CFA (Chartered Financial Analyst) Only 42% of candidates pass the three required exams after 900 hours of studying in accounting economics, ethics, finance and math. This process can take several years.

PFS (Personal Financial Specialist) and CPA (Certified Public Accountant) Every PFS holder must be a CPA. Usually you will see “CPA/PFS”. These CPAs have met education and experience requirements and have passed a comprehensive exam on financial planning. Many PFS advisers focus more on tax-efficient financial planning than just tax work.  CPAs must pass a 14-hour exam and must get 40 hours of continuing education on an annual basis.

CFP (Certified Financial Planner) These advisers must also meet education and experience requirements and pass an exam. They must get 30 hours of continuing education every two years.

RIA (Registered Investment Adviser) This is NOT a credential. It simply means that the person has registered with the either the SEC or the state securities board and has paid a registration fee.

More later…

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.

Recently, Wall Street Journal Getting Going columnist, Karen Blumenthal, wrote an informative column, How to Wreck Your Credit Score. Karen notes, “The severe consequences underscore that you shouldn’t shrug off even an accidentally missed [mortgage] payment… Being 30 days late on a house payment – even if it is an accident – can knock 100 points off a pristine 780 credit score, moving you from qualifying for the very best interest rates to the edge of subprime territory.”

So, how bad can that be? She explains that if you have a 620 score, you would pay almost 12% on a four-year $25,000 care loan. If you have a 780 score, you would pay 5% on that same loan. The difference is almost $4,000 over the four-year loan. I’m sure you can think of something better to do with $4,000.

Where would you rather spend $4,000?

#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.