Financial Considerations in a Collaborative Divorce

 
Last week I ran into an acquaintance who is in the process of getting a divorce. She tells me things are going smoothly; it is a collaborative divorce with no attorneys involved.  Both she and her spouse are going out of their way to be civil towards each other for their children – a 12 and 14 year old.  They are also amicably splitting their assets and will have joint custody.

The accountant in me had to say, “Don’t forget to discuss which parent gets to deduct the children on future income tax returns.”

She responded with “I never thought of that.” and “How do you know that?”

I’ve worked in some aspect of accounting for almost 30 years and have my CPA license, but to be honest, most of what I’ve learned about the financial pitfalls of divorce comes from co-workers and friends complaining after things have gone badly.

Here are a few tips:

Claiming your children as dependents:

Usually the parent who has custody of the children for the greater part of the year will claim them as dependent exemptions on their income tax return. This is an important designation because most often the parent who can claim their children as deductions is also the parent who receives other tax related benefits and credits.

Head of Household

This filing status is only available to the custodial parent. It provides a bigger standard deduction and looser tax tables than single taxpayer status.

Higher education costs:

The spouse that claims the children as a dependent is the parent allowed to claim the American Opportunity Lifetime Learning Credit (this can be worth up to $2,400 during the first four years of a child’s education). If you do not claim your children as dependents you can’t claim this credit even if you were the parent paying their college bills.

Get it in writing:

In joint custody situations parents can take turns claiming the children, but this has to be in writing. Make sure it is part of the divorce agreement.  If the non-custodial parent wishes to claim the child, the custodial parent must waive their right to claim the child on IRS form 8332.

Don’t assume you are entitled to the exemption because you pay child-support:

A newly married co-worker filed a joint tax return with her new husband claiming his daughter from a previous relationship as a dependent. (She thought the first parent to file gets the exemption).  The child’s mother also claimed the child despite being told my-coworker had claimed her.  His return was audited, the IRS deemed the mother as the custodial parent and eligible for the deduction.  My co-worker and her new husband had to pay back taxes were fined and required to pay interest on their return.

Alimony:

Alimony is considered taxable income for the recipient.  If you receive alimony make sure you make estimated payments or set aside a portion of each check so you are prepared for your tax bill the following year.

Alimony payments are deductible by the person paying them, but only if made on account of a divorce decree or written agreement. An oral agreement will not suffice and payment must be in the form of check, cash or money order.   

Retirement savings:

401(k) distributions are taxable.  If you want your spouse to be responsible for taxes on distributions they receive from your retirement account make sure your divorce papers include a (QDRO) qualified domestic relations order. Without a QDRO, you may end up paying the tax bill.

Spouses do hide money:

This is probably the biggest lesson I can give you.  During my 30 years of working in accounting departments I have been asked more than once to not pay a commission, bonus or to withhold a raise until after an employee’s divorce is final.  I’ve seen this at more than one company and the request is always granted – it is the employee’s money.

I’m not familiar with how collaborative divorces work, if lawyers are not involved I recommend consulting with one anyway to make sure all interests are covered.  Consulting with a tax accountant can’t hurt either.

Are you aware of financial pitfalls in a collaborative divorce?

How to Pay off Your Parent’s Mortgage?

 

My Parents divorced when my Mom was 55. One of the first things she did after securing full-time employment was to purchase a condo. Despite refinancing her mortgage for a more favorable interest rate (than the outrageous balloon she originally incurred) and a shorter mortgage term she still owed $60,000 of principle when she was forced to retire at age 75. She quickly discovered with almost no accumulated savings, making ends meet on a fixed income with a mortgage was difficult.

My siblings and I began discussing how we could assist her in paying off her mortgage, then recoup our investment when she eventually sold it.

My mom met with an elder care lawyer to discuss deeding her condo to her children. I knew it had become more difficult to transfer property since President Bush had signed the Deficit Reduction Act of 2005 (this Act increased Medicaid’s look back period from three years to five), but was surprised when the lawyer flat out refused to help us. She said with my mom having virtually no savings she would be ineligible for Medicaid for the next five years until every penny of equity transferred to us had been paid to her nursing home. What if her children couldn’t come up with this money? She refused to put my mom in that situation. 

We asked, “What if my mom doesn’t need nursing home care in the next five years?”
The lawyer didn’t care, she felt my mom’s condo equity should remain with my mom to cover her long term care or other expenses whenever they may occur. The discussion was over.

$60,000 split four ways was too great of an expense for my siblings and I to handle. There were spouses and grand-children to consider, child-care expenses and our own mortgages; $15,000 was a lot of money to hand over to your mother-in-law with no guarantee of ever getting it back. We explored other options such as selling the condo and having my mom rent or live with one of us, but she wasn’t ready for that. Plus, monthly rental payments cost almost as much as her mortgage expense. Instead, my brother reviewed all of her bills and cut every unnecessary expense. It literally made us sick to see how she had been taken advantage of over the years by cable companies, insurance agents, car repairmen, investment advisors, etc. When he finished her monthly expenses were manageable.
Her condo will be paid off next February and I’m confident she’ll make it.

I was reminded of my mom’s mortgage when my husband and I met with a Wisconsin title employee last week. As the representative was going over our mortgage paperwork she said something about it not being a good idea for our children to make our loan payments. Instead, she recommended they refinance the mortgage in their own names if they wanted to make payments.

After the closing was over, I asked her to explain what she meant about children refinancing the mortgage in their own names and if this was the preferred method for a child to pay off their parent’s mortgage.

She actually recommended children not pay off their parent’s mortgage and if needed do so only if:
- A written agreement was drafted by a lawyer and signed by the parent and the child prior to the child making any payments.

- All siblings were aware of the agreement and a written repayment plan was discussed and agreed upon by all siblings.

- Every mortgage payment was made with a paper trail. Never give a parent cash to make a payment.

She knows of several children (including herself) who paid mortgages and other expenses on behalf of their parents assuming they would be reimbursed from their parent’s estate only to have these repayments disputed by siblings. Lawyers were involved, the child was never reimbursed and the siblings no longer speak to each other.

Her bottom line advice on how to pay off your parent’s mortgage:

Don’t do it.

Have you or your siblings paid expenses on behalf of your parents? Has it been a favorable experience?

Esthetician Interview - Q & A with The Esthetic Goddess

After reading Susie of The Esthetic Goddess's post What I Have Learned (So Far) As An Esthetician, I knew I had to interview her about her career.  In the following interview Susie provides an insider’s look into her career as an esthetician while offering advice and tips to help the consumer. Enjoy:  

I have been a licensed esthetician for over 10 years in a wonderful medical spa. When I go to work every day I get to do facials, chemical peels, micro current, skin tightening treatments, and micro dermabrasion. My job is not only fun but rewarding and I love sharing what I have learned in the esthetics field!

What is an esthetician?
An esthetician is someone who works on the skin. This can include facials, waxing, chemical peels, body wraps, make-up and lasers. Estheticians cannot diagnose or treat skin diseases. If I see something suspicious on a client I recommend them to my favorite dermatologist who I know will take good care of them.

What motivated you to become an esthetician?
I started getting chemical peels at the age of 28. I thought it was so cool that just by applying something to someone’s skin you could change their skin tone and texture for the better.

When I was 37 my 17 year marriage came to an end. I had always been a stay at home mom and need a career. I had such a love for esthetics that it was a meant to be for me! We have no esthetic schooling around me so I drove 180 miles a day for school. I was extremely determined to make it happen and it was extremely worth it in the end!

What kind of experience and preparation helped you the most?
I feel like I got an exceptionally education from my esthetics teacher. She was a tough teacher. At first she didn’t even like me. (Hello?! I’m really lovable!) She gave me the hardest clients to work on and I was determined (There’s that word again. It describes me well!) To not let her break me. By the time I graduated her heart softened. She’d seen me working hard and exceeding education wise. She adored me by the end and I her! I owe so much to her. I felt very well prepared when I graduated.

In Illinois where I live Estheticians are required to have 750 hours of schooling. Once you graduate you have to get a state license by passing a written exam. After passing you can go on to more advanced training since you only learn basics in school. Every two years you need to complete 10 hours of continuing educating. This is for Illinois. All states have different requirements for estheticians.

What do you like best about your work?
Helping clients gain confidence! When a client comes to me with sun damage, acne, wrinkles, or whatever the skin problem is. I not only will help treat their skin but teach them what they need to be doing at home to maintain their skin in between the time till I see them again for another treatment. My goal is to always get my client skin looking great without make up.

What is your biggest headache?
Clients who think everything can be corrected in one treatment. It took a long time for their skin to get to the condition it is so it will take time to get it in good shape. Sometimes it can take several months. If you want your complexion looking beautiful for a wedding, reunion, etc. then start working on it a year before the special day.

What are the important personal qualities or abilities necessary for a person to be a successful esthetician?
Patience is a biggie! Not just treatment wise but you must have patience with the client themselves. For many of them they have never been taught to use the proper skin care. Often times I will baby step them into using the correct skin care. Starting with a good cleanser and working from there. This way they will not be overwhelmed with a lot of products at once.

I also think you must always be professional. I have a ton of fun with my clients but I would never bad mouth my completion. Even if a client is telling me of a bad experience they had with them.

Always do your job with integrity. Don’t sell a client a product or treatment you know will not work for them.

For someone who is considering this field, what would be you advice?
Find what you love in this field and specialize in it and never ever stop learning!

What do you wish you would have known before entering this field?
I can honestly say I have no surprises when I enter this field of work. I went into it with my eyes wide open and have never regretted it for a second!

How much can an esthetician expect to earn?
As a licensed esthetician you can make anywhere from $20,000-$50,000. It will all depend on experience and were you are working as well as what field you’re in. Working in a medical spa will pay more than working in a in a hair salon. You can also work from your own home or become a make-up artist. Salary will also depend on geo graphics. Do you live in a small town or big city? There are so many different variables.

Are there any scams or pitfalls to watch out for (phony opportunities, uncomfortable or scary situations, etc.)?
Oh there’s a ton of skin care out there that doesn’t really work. That’s why I will try out products for 3 months when trying a new product line. You cannot expect skin care to change your skin in 2 weeks and if they advertise that I would be very leery of that company. You also have to be careful of salesman selling machines. Lasers, skin tightening, microderm machines or any machine really. They all have limitations but sales people will say anything sometimes to make a sale. Not all sales people of course but they better have clinical studies to back up what they are claiming.

You mention on your blog that this is an ever changing field, what is the biggest change you’ve seen over the years?
There are definitely more machines then ever out now. So many different types of lasers and you can treat everything from sun damage to sagging skin to wrinkles with them. This is why it’s so important to stay on your toes. You have to figure out what really works and how well it will work for your clients.

I am a 51-year old woman with extremely oily yet sensitive skin. I recently noticed fine lines on my forehead and in the corner of my eyes. I have a drawer full of free samples of over-the-counter anti-aging products which I never remember to use. When I do remember, I either end up with a rash or don’t see any noticeable difference. If I were to visit your salon what would you recommend for my skin?
First and foremost we would sit down and discuss everything you are using on your skin and figure out what you should be using. Many times client believe there skin to be sensitive when it truly is not. It may have to do with two products they are using that are interacting with each other or it is an anti-aging ingredient, like retinol or glycolic acid, which when you first start using causes your skin to get red, itchy, or flaky. When used correctly, your skin will get acclimated to the products and all that will stop. After that we would discuss some of the treatments I can do on you to help address these issues. Like a chemical peel to help with fine lines and your oily skin. You may also be a candidate for the Venus Freeze treatment which helps tighten the skin. However I think your best bet is Botox to erase those wrinkles. Botox is a muscle relaxer. It’s perfect for forehead lines and crow’s-feet. I have been getting Botox done for over 20 years and think its da bomb!!

Also, I know a woman who had a skin treatment to remove acne scars from her chin at a prestige skin-salon. She ended up with second degree burns on her face and a settlement of $3,000 to pay her medical expenses. I’m not sure what happened; if a mistake was made with the procedure or if she didn’t understand the potential side-effects. What questions should consumers ask or potential problems should we be aware of before choosing a skin-treatment product or procedure?     
This really is dependent on the type of treatment. I think the biggest thing for the client would be to know how often they are preforming this procedure. What kind of training was involved and what is the reputation of the facility they are planning on going to.

Is there anything else you would like readers to know about yourself, skin care or your career?
If anyone is think of going into esthetics it is an incredible rewarding field and I feel blessed every day to not only have a wonderful clientele but to work in a medical spa with the a fantastic group of people ever!

Where can we find you?
If anyone has any concern about their skin I am always happy to help. I can be found at http://www.estheticgoddess.com.

How to find a support group?

At a recent committee meeting with my professional organization one of my fellow volunteers announced she is quitting our group. I was anticipating the usual complaints, “I am too busy with work” or “I need to spend more time with my kids.”  Instead she informed us, “My marriage is over and I need to focus my time and energy on rebuilding my life.”     

Between discussions of committee business this woman (I will call her Jane) interjected with stories of her marital problems and fears of starting over. She mentioned a couple of times she didn’t have any friends.  She closed the meeting with, “What should I do next?” 

Our group responded with silence.

Jane then said, “I received the name of a lawyer from a counselor I’ve been visiting with my kids. I guess I could give this lawyer a call.”

No longer able to stand the silence, I decided Jane needed to hear my story.  I had been in a long-term unhealthy relationship through most of my twenties.  A couple of months before I was to be married this relationship took a turn for the worst and we began attending couples counseling.  My ex-fiancé failed to show up for one of our sessions and the counselor used this as an opportunity to give me some eye-opening advice.  He didn’t understand why I wanted to stay in this relationship.  The way he saw it my ex was using one hand to praise me by patting me on the back and the other to slap my across my face. He foresaw me being nine months pregnant and my fiancé abandoning me.  He told me of another counselor who facilitated a support group for women.  He was going to call this counselor and recommend I join her group.

I joined the support group. My fiancé and I broke up and I went on to create a new life for myself.  Jane listened intently as I told her how this period in my life was scary, but also full of new possibilities and experiences.  There were tears, but also moments of joy.

In addition to the structured support group I attended each week, I also created an informal support group on my own. A former college roommate had moved back to my area and had befriended a neighbor who was separated from her husband. The three of us began attending a weekly happy-hour.  The neighbor invited a co-worker to join us and the four of us became friends.   In addition to happy hours, we attended classes on self-esteem, took cooking classes, visited the Chicago Art Museum, saw a play and went to movies.  We also took biking trips and I learned to cross-country ski.  We were all the same age and towards the end of our 30^th year we traveled to California to visit our friend (the neighbor) who had moved there to reconcile with her husband. 

How did these support groups help me transition to the uncoupled life?

The first structured support group gave me the strength to end my relationship and begin the process of building a new life.  I was assigned weekly tasks such as asking my ex to return my apartment key and finding a new roommate.  I had to report back the results of my assignments the following week.

In Becky Aikman’s book Saturday Night Widows: The Adventures of Six Friends Remaking Their Lives she writes:

What truly helps those who have been uncoupled: friendship, fun, humor the flexibility to strike out anew.

My second informal support group provided just that. So what should Jane do?

Near the end of Saturday Night Widows Becky Aikman tells her support group: 

“I think when anybody is reinventing herself, she’s got a choice.  She can stay detached and look inside herself for answers.  We’ve all heard that advice - finding yourself.”  I shook my head and threw them a dubious look.  “Knowing you has shown me that, at least for me, finding myself wasn’t a solitary task.  The way for me to move forward was to get out there on Saturday night, to engage with other people, to engage with the world, to engage with you.  Funny as it may sound, I’ve found myself by going outside myself.  I’ve found myself through action, though action with you.” (Pg. 329)

I wasn’t going to tell Jane she should call the lawyer. I didn’t feel it was my place to recommend she leave her husband, but I was going to help her find a support group.  A few weeks ago, in the comments on Miss Robin’s post What are my options when my husband is mean? I read about a support group for those who are dealing with, or think they may be dealing with, verbal, emotional, physical, sexual, spiritual or financial abuse called Our Place found at http://www.our-place-online.net. I gave this information to Jane. 

One of our other members recommended Jane not quit our organization.  I quickly agreed, reminding her several of our organization’s members were single.  Many of them would welcome Jane as a friend.  I also told her of the occasional get-together I have with one of our other members and her divorced co-worker.  I plan on inviting Jane to our next outing and foresee the beginnings of an informal support group in Jane’s future.

Do you have any advice for Jane?   

This post was inspired by the book Saturday Night Widows by Becky Aikman. After being kicked out of her widow support group for being too young, Becky creates her own support group with an unusual twist. Join From Left to Write on February 14 as we discuss Saturday Night Widows. As a member, I received a copy of the book for review purposes.

If you enjoyed this post you may also like:
Taking personal responsibility for your life
Love for Grown-Ups
How to Avoid Being Conned on a Dating Site
Happens Every Day: An All-Too -True Story
 

Take Hostile Breakup Threats Seriously

I received the following comment on my post Is working for your boyfriend a good idea?

My daughter is now involved in a very hostile breakup with her long time fiancé (7 years) whom she worked for. He is denying her right to claim unemployment benefits and things have become threatening (I am going to ruin your life) going to the length of saying she used company points to fly off to see other people. When actually all was agreed that instead of using cash she could use points etc...Really a very terrible and scary situation as he is extremely hurt and revengeful. So no do not ever work with a boyfriend or girlfriend. Starting a business together once married is way different. Hard to know what to do because he is powerful and has money.

Your daughter’s story is an excellent cautionary tale of why someone shouldn’t work for their boyfriend, but her situation has turned serious and needs to be treated as such.  Has your daughter’s ex-boyfriend threatened to harm her? If he has she needs to alert legal authorities immediately. Also, I suggest she contact the domestic violence shelter in her area. To find the nearest shelter please see: WomensLaw.org.

According to the WomensLaw.Org website, shelters provide many services other than shelter. Most have support groups, crisis counseling, and safety planning assistance. Many also provide legal support (and sometimes representation), help getting back on your feet with government benefits like food stamps and housing, job training referrals, child care, and more.

Your daughter should ask for assistance in working through her denied unemployment compensation claim and for help getting reestablished in the job market.

If the organization nearest you isn't helpful, try calling another one. If you do not find what you need in your community, you may also call these national organizations:

- National Domestic Violence Hotline -- 1-800-799-SAFE (7233) or TTY 1-800-787-3224

- National Sexual Assault Hotline -- (800) 656-HOPE

- Stalking Resource Center -- 1-800-FYI-CALL, M-F 8:30 AM - 8:30 PM EST, or email gethelp@ncvc.org

There have been far too many stories in the news lately of women being harmed by an angry ex. In this case, your daughter’s boyfriend no longer has control and power over her and is fighting to keep it. She needs to seek assistance from others in her community to help keep her safe and strong as she recaptures control over her life.

Do any of you know of additional resources or have advice to help this woman?

Worker embarrassed to attend retirement party after being fired

Jennifer writes:
I was recently fired from my janitorial job after 20-years of service.  I am 75 years old.  My manager and co-workers had asked me numerous times over the past three years when I planned on retiring.  I always responded with, “never.”  I loved my job, enjoyed the people I worked with and needed the money.  Having been a stay-at-home mom before divorcing my husband at age 55, I still have a mortgage, almost no money saved and a mere pittance of a social security check.  Three weeks before my birthday my manager called me in for a meeting, she had written me up for working too slow stating others had complained they had to complete my work.  I strongly disagreed with her statement and spent the next three weeks keeping to myself and working hard.

Around my birthday, my co-worker gave me an empty swag bag he had found in the ladies restroom (the company I worked for hosts numerous on-site conferences) and asked me if I wanted it.  I took it (despite knowing the rules – we are to turn in any left behind items to lost and found).  A week later I was called in to HR.  This very same employee had turned me in to his manager for stealing the swag bag.  I told them he had found the bag and had given it to me, though, I did admit to taking it.  He denied giving me the bag instead saying he had witnessed me stealing it.  I was fired.  

One more fact to note, my-coworker and manager are husband and wife.
Yesterday I received a phone call from one of my other co-workers; the company wants to throw me a retirement party.  The party will be held at my former place of work and supposedly everyone will be there.  I am embarrassed to show my face after what happened.  Am I obligated to attend?

Jennifer,

I sincerely believe you were not fired for stealing an empty $2 swag bag; you were forced to retire because you are 75 years-old.  Companies can’t tell you that though or they risk being sued for discrimination.  They now feel guilty and want to give you a proper send-off and thank you for emptying their trash cans and scrubbing the company urinals for the past 20-years I highly doubt your former manager and her lying back-stabbing husband will show their faces.   Go.  You deserve a proper send-off.

Also, I believe in Karma. Setting you up like this was truly shameful. I predict your company will eventually outsource their janitorial services and your former manager and back-stabbing co-worker will be the first ones to be let go.

Enjoy your retirement. You deserve it.

Love for Grown-Ups

Motivation for reading:
TLC Book Tours recommended I review the book Love for Grown-ups: The Garter Brides' Guide to Marrying for Life When You've Already Got a Life by Ann Jacobs, Patricia Lampi and Tish Rabe for this blog. Since I write about personal finance, finance for women, relationships, and also do book reviews, I decided to accept a review copy.

What is the book about?
The book offers advice for dating and getting married later in life and includes thoughts about combining finances with prospective partners, enjoying dating, blending families, and more.


Why do the authors call themselves Garter Belt Brides?
Because all three of them got married after the age of thirty-five and each bride wore the same lucky garter at their wedding.

My thoughts:
First off I was pleased the book was better than the fluffy gimmicky “How to find a man in 30 Days” books my old roommate used to read and leave lying all over our apartment.

This book, though, not as in depth as I would have liked did touch on important points and offer good advice.  For example: pay attention to how he treats his mother, be careful of over sharing (too soon), and introduce him to your friends at a large gathering (you can arrive and leave spontaneously). I especially agreed with the advice to read each other’s divorce agreements and to make out new wills before getting married.

I also realized since I married at thirty-five, I too was a garter bride and have to agree with what they say about grown up dating:

Grown up dating is different from dating in your twenties – in a good way! First, you’re a lot wiser about what you want in a relationship. Second, there’s only one rule: It should be fun. Both of you are looking for a new start, so give yourselves one!  (Pg.1)

In addition to advice from the authors, the book also includes anecdotes and experiences from other grown up brides.  I thought this was especially helpful in the chapters pertaining to couples with children; how to meet the kids and blend the families.

The book offered an entertaining look at dating as a grown up. I came away with the following suggestions for a successful relationship: both parties need to have an open mind, talk about their needs, be honest, willing to compromise and willing to change. Overall though I think the book makes "love for grownups" sound easier than it actually is.

If you enjoyed this post you may also like:
How to Avoid Being Conned on a Dating Site

Be informed about Social Security

Both of my parents were eligible for a mere pittance in Social Security benefits at age 65 despite working together on the family farm 31 years before they divorced. My dad worked exclusively on the farm his entire life except for a brief stint with the army reserves. I found this hard to believe. I remember the farm not generating much income when I was small, but I thought it did fairly well once my younger siblings were in high school. How could this be?

Filing a Federal Income Tax return has nothing to do with Social Security:
My family's farm was owned by my grandparents. My father received a monthly allowance which my parents recorded as income when they filed their joint income tax return. The problem is filing an income tax return has nothing to do with the assignment of Social Security. The Social Security portion of a self-employment tax return is filed on a form called Schedule SE. So first my grandfather's name and Social Security number were listed on the Schedule SE and after his death my grandmothers. This meant all of the farm earnings and credits were posted to my grandparent’s accounts and none to my parents. This is an important lesson for anyone jointly running a family business, if you plan on one day collecting Social Security benefits make sure your portion of the business profits are filed on a separate Schedule SE with your name and social security number.

You need to remain married ten years in order to collect on your ex-spouse's Social Security account:
A marriage must last ten years before a divorced person may be eligible for an ex’s Social Security benefit. So if you’ve been married 9 years and ten months hold on for another two months if you want to one day tap into your spouse’s Social Security account. Note you will need to be unmarried to collect these benefits and at least 62 years old.

Read the obituaries:
If you were married to your ex for more than ten years make sure you read the obituaries. Once an ex-spouse has died you are eligible for a divorced survivor benefit. This benefit will be 100% of the deceased ex-spouse's benefit. If you remarry after age 60, you can still receive the survivor benefit.

My dad may be eligible for a spousal benefit:
My Mother, who worked before she was married, returned to work after her divorce and is still working at age 74. Her Social Security benefits continue to increase, as she makes additional contributions. Plus on a side note, her Social Security benefit was no longer subject to income tax once she turned 70 years old. It just occurred to me that my dad could probably collect a higher Social Security benefit if he applied for spousal benefits. He is eligible for 50% of her benefit which is probably more than he receives now. He could also be eligible for free Medicare Part A benefits based on her earnings record, since I doubt he has accumulated enough Social Security credits to be eligible for Medicare on his own. If she were to die before him he would be eligible for the higher deceased ex-spouse benefit.

He was such a jerk towards her throughout their marriage and divorce proceedings though I don’t think I can bring myself to tell him this.

See also:
Do you review your Social Security statements?

Gender Wealth Gap is the Greater Problem

I read Mariko Chang's Shortchanged: Why Women Have Less Wealth and What Can Be Done About It for a personal finance book club.

Chang begins the book by informing us the gender wage gap appears to be closing. Women now earn 77.8 cents for every dollar men earn (an all time high) and women under 25 working full-time earn 95% of what their male peers earn. Women also make up 47% of the work force.

While I still can’t get excited about a 78% pay gap, compare that to this - women own 36% as much wealth; for every dollar a man owns a woman own 36 cents. Chang calls this the wealth gap. In the long run it is wealth, the value of assets minus debts, not earnings that is more important. Wealth is what sends your children to college, allows you to start your own business, and helps you make ends meet when you lose your job or your hours are slashed. Also consider with everything else being equal, women will need to support themselves an average of six years longer than men.

What factors contribute to the wealth gap?
Chang attributes the wealth gap to women’s inability to tap into the wealth escalator:

The variety of legal, institutional, and societal mechanisms that help some convert income into wealth at a much faster pace than is possible by savings alone. (Pg. 38)

The wealth escalator includes:
Work fringe benefits such as life and health insurance, paid vacation and sick days, and retirement contributions. Women are more likely to work in part-time jobs or in industries that do not offer fringe benefits such as the service sector.

The tax code has provisions more beneficial to those with higher earnings – capital gain tax rates and mortgage interest deductions.

Government benefits such as unemployment benefits which have minimum earnings thresholds. Women generally receive less of a benefit because they have lower earnings to begin with.

Also interesting to note, some government programs discourage asset accumulation. For example with the Temporary Assistance to Needy Families (TANF) people lose benefits if they have managed to save or if they own an automobile whose value surpasses the vehicle asset limit.

The Debt Anchor:
Women tend to have more debt than men, higher interest rates on their debts and are more likely to fall victim to predatory lending practices.

Motherhood:
Women are more likely to be single parents and in divorce most likely to have custody of the children. Even those who receive child support have less money to save and invest. Also mothers face stereotypes in the workplace, whereas men experience a wage increase with fatherhood. Mothers receive a 4% wage penalty for the first child and a 12% penalty for each additional child.

Chang proposes suggestions to address the unequal burdens and consequences of care-giving, so that women who work just as hard as men and can be given equal wealth building opportunities. She points out we are only one of two industrialized countries without a national paid maternity (Australia is the other country).

My thoughts:
Shortchanged: Why Women Have Less Wealth and What Can Be Done About It is a slim book packed with important information that deserves more recognition than it has received. Every woman should be aware of the facts in this book. I had a difficult time finding a copy of this book and from the comments of my fellow book club participants others did as well. Let’s get the word out and on a final note let’s make sure our daughter’s have the tools and knowledge they need to navigate the financial world.

I want to close with the quote Marika Chang included at the beginning of chapter two:

My Aunt… died by a fall from her horse when she was riding out to take the air in Bombay. The news of my legacy reached me one night about the same time that the act was passed that gave votes to women. A solicitor’s letter fell into the post-box and when I opened it I found that she had left me five hundred pounds a year for ever.

Of the two-the vote and the money, I own, seemed infinitely the more important.

- Virginia Woolf, A Room of One’s Own

How do I know my 401(k) assets are safe from my company?

Here are some of the questions I have received over the years from employees concerned about their 401(k) assets:

Are my 401(k) assets safe from my company? Can my company withdraw monies from my account to pay company debts? Can they use my 401(k) account as collateral for a loan? What if my company goes bankrupt? Can my assets be seized along with the company’s? How can I be sure my company is forwarding my money to the mutual fund company on a timely basis or at all?

I usually answer by explaining that a 401(k) account is a separate entity from the company. This account is heavily regulated and can not be accessed by the company. I also tell them our 401(k) account is audited each year and as a part of this audit we must prove employee assets were transferred within Department of Labor guidelines. Currently our payroll company transfers employee deductions directly to our plan’s 3rd party administer shortly after our payroll has been run.

There was an informative article in today’s Milwaukee Journal that answers most of these questions: How safe is your 401(k)? by 401(k) adviser Michael J. Francis.

Francis explains Congress passed the Employee Retirement Income Security Act, known as ERISA, to safeguard qualified retirement plan assets in 1974. This act was a result of the demise of the Studebaker Motor Co. and the questionable business dealings of Jimmy Hoffa Sr. If you don’t know the story I highly recommend you read the article.

Francis informs us of ERISA's protections:

ERISA requires when your 401(k) contribution is withdrawn from your paycheck that the funds be deposited in a trust account, separate from your employer's assets and separate from any financial institution's assets.

This requirement protects you in the event your employer, or the financial institution that holds your retirement assets, runs into financial trouble.

This rule also protects 401(k) savings if you find yourself in the unfortunate circumstance of filing personal bankruptcy. This risk has always been an issue for business owners and professionals subject to malpractice lawsuits, but more people are benefiting from this protection in today's difficult real estate market.

There are two creditors, however, that even ERISA cannot protect you from: the IRS and a former spouse. The law states that if you owe either of these parties money, they can collect by a forced liquidation of your 401(k) account.

For a more informative answer to the basic responsibilities regarding timely 401(k) deposits I turned to the United States Department of Labor:

The deductions from employees’ paychecks for contribution to the plan must be deposited with the plan as soon as reasonably possible, but no later than the 15th business day of the month following the payday. If you can reasonably make the deposits in a shorter time frame, you need to make the deposits at that time.

For plans with fewer than 100 participants, salary reduction contributions deposited with the plan no later than the 7th business day following withholding by the employer will be considered contributed in compliance with the law.

On the US DOL website I also discovered What you should know about your 401(k) plan a comprehensive publication covering everything you should know about your 401(k) plan. To protect yourself the DOL recommends you should review regularly:

• Make sure you have received the plan’s Summary Plan Description and read it for information on how your plan works. Read other documents you receive from your plan to make sure that you keep up with any plan changes, and check that the information on your benefit statement is accurate.
• If you are in a defined contribution plan, ask for information on the investment choices available in the plan, and find out when and how you can change your plan account investments. 
• If you suspect errors in your plan information, contact your plan administrator or the human resources department.  
• If there have been changes in your personal information, such as marriage, divorce or change of address, contact your plan administrator or the human resources department.
• Keep your plan documents in a safe place in case questions arise in the future.

Here are Ten Warning Signs your 401(k)Contributions are Being Misused:

• Your 401(k) or individual account statement is consistently late or comes at irregular intervals
• Your account balance does not appear to be accurate
• Your employer failed to transmit your contribution to the plan on a timely basis
• A significant drop in account balance that cannot be explained by normal market ups and downs
• 401(k) or individual account statement shows your contribution from your paycheck was not made
• Investments listed on your statement are not what you authorized
• Former employees are having trouble getting their benefits paid on time or in the correct amounts
• Unusual transactions, such as a loan to the employer, a corporate officer, or one of the plan trustees
• Frequent and unexplained changes in investment managers or consultants
• Your employer has recently experienced severe financial difficulty

 If you suspect a problem the DOL recommends:
Starting with your employer and/or plan administrator. If you find an error or have a question, in most cases, you can start by looking for information in your Summary Plan Description. In addition, you can contact your employer and/or the plan administrator and ask them to explain what has happened and/or make a correction.
 
If that does not resolve the problem:
Contact the Department of Labor’s EBSA for questions about ERISA, help in obtaining a benefit, or:

• If you believe your claim to benefits has been unjustly denied or that your benefit was calculated incorrectly;
• If you have information that plan assets are being mismanaged or misused;
• If you think the plan fiduciaries are acting improperly; or
• If you think your employer has been late in depositing your contributions

Happens Every Day: An All-Too-True Story

As part of my 2009 goal “Getting my Ducks in a Row,” I’ve been reading quite a few memoirs in search of inspiration to continue moving forward with those baby steps. In doing so, I’ve come to the conclusion Sarah Statz Cords had a valid point when she wrote on her blog Citizen Reader:

For a long time, I wasn't up to reading memoirs. They're almost like fiction for me in that there's so many of them available; I'm bound not to like the majority of them.

I was looking forward to Isabel Gillies book Happens Every Day: An All-Too-True Story; not all change or reinvention is the result of our own choice i.e. divorce, job loss, or loss of a loved one. In Gillies case, her life is turned upside down after her husband develops a crush on a fellow teacher and announces he is done with their marriage.

I first heard of this book on Gretchen Rubin’s blog The Happiness Project when she interviewed the author, Isabel Gillies. Isabel has done some soul searching on happiness and gave an inspiring somewhat introspective interview. I love this line:

"I think what one may want to achieve is not so much happiness but peace?"

The problem with the book is what the title states, "Happens Every Day" there just isn’t anything new here; Isabel meets boy, gets married, has two kids, relocates for his career, he has an affair, they break up. The story would make a great "Lifetime" movie complete with the requisite box of Kleenex.

I was hoping for more introspection from Gillies including what inspired her to move on after her marriage ended and the steps she took to rebuild her life. Unfortunately, she had given the major points of her introspection in the interview she gave Gretchen which I had previously read.

She did, however, offer two good pieces of advice for couples splitting up:

1. The first step for moving on is to get a really good lawyer.

2. My lawyer from Cleveland gave me a good piece of advice. He said we should come up with a separation agreement fast. If you are close to the marriage you remember what the good parts felt like. In the beginning you both will want to treat each other well, or at least fairly. The farther you get from the marriage, the more lawyers involved, the more he turns into an asshole he never really was before and she turns into an incredible bitch she wasn’t before. Don’t let lawyers talk for you because everyone will lose. Everyone losses anyway in a divorce. Both sides always have to give a little bit more than they want and lose a little bit more than they want. There are no winners.

Enough Said.