Articles Tagged with retirement

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Carolyn Woodruff

Dear Carolyn,

I have received spousal alimony since a 2003 court order until death. I would like to get an increase because of the economy. My ex-spouse receives three times my social security and retirement. His home is paid for and he owes three motor vehicles. His social security and retirement from a big local company is great. I received zero from this after 38 years of marriage. He was in Management. What are my chances of getting an increase?

Carolyn Answers:

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Walsh v. Dively, 551 B.R. 570 (W.D. Pa. 2016)

Facts: When husband and wife were divorced in Pennsylvania, they agreed that the wife would receive 50% of the husband’s retirement. The agreement was incorporated into the divorce decree, but no DRO was entered.

The wife then filed for Chapter 7 bankruptcy. The bankruptcy trustee moved in bankruptcy court for authority to ask the state court to issue a DRO. The bankruptcy court denied the motion. The trustee then appealed.

Issue: Should the trustee be permitted to seek a DRO?

Answer to Issue: No

Summary of Rationale: The trustee has a duty to collect property of the estate in bankruptcy.  But retirement plans with an antialienation provision are not part of an estate in bankruptcy. Patterson v. Shumate, 504 U.S. 753 (1992). The retirement plan at issue was governed by ERISA, and it was subject to the statutory antialienation provision in ERISA unless a QDRO was entered. Because a DRO had not even been entered, let alone qualified by the plan, there was no QDRO, and the antialienation provision remained operative. Thus, the pension was not part of the wife’s estate in bankruptcy.

Note: As we shall shortly see, it is quite important that the state court awarded the wife an actual interest in a retirement plan, and not an award of cash she could spend freely for any purpose.

 

In re Kizer, 539 R. 316 (Bankr. E.D. Mich. 2015)

Facts: In a consent judgment of divorce, a court awarded the husband 50% of three retirement accounts owned by the wife. The wife was also awarded the marital home, but required to pay the husband for his interest. Because she lacked the funds to make the payments, she agreed to pay for the home by giving up her interest in the requirement accounts, increasing the husband’s interest to 100%.

QDROs were subsequently entered and approved, directing the administrators of the accounts to transfer to the husband 100% of the balance of certain accounts. The plan administrators complied with the QDROs by giving the husband accounts containing the funds at issue. A finding of fact was made that the husband could make withdrawals from these accounts at any time, without any form of early withdrawal penalty. (The husband claimed that his withdrawals were subject to a penalty, but he failed to produce supporting evidence, even after the court gave the husband additional time.)

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CarolynCarolyn Woodruff, a North Carolina CPA and Family Law Specialist, frequently is faced in sending a divorce client in the right direction after receiving a retirement plan in a divorce settlement.   Here are her thoughts on the subject:

The recipient may be receiving generally one or more of three types of retirement funds: (1) IRA; (2) 401k; and/or (3) defined benefit plan. Each type of plan should be evaluated as each has unique characteristics discussed hereafter.

Overall, there are four questions the divorcee should ask immediately post-divorce: (1) Age: What is my age now and at what age do I expect to retire? (2) Debt: What is my debt? Do I owe credit cards? Car debt? Is my home paid for? (3) Advisor: Do I need a financial planner or advisor, or am I competent to make investments myself? If the divorcee can do some basic investment herself, she can save administrative costs with mutual funds such as Vanguard. (4) Goal:  How much will I need for retirement adjusted for inflation? The goal is to develop a plan that achieves the goal with moderate or low-risk investments.

Hypothetical: A 40- year-old divorcee would like to retire at 67, which means she has 27 years to plan for retirement. Let’s say she has a 20-year mortgage on her newly acquired home, so this should be paid for before retirement, and perhaps available for a reverse mortgage at some point after retirement if needed. The availability of a reverse mortgage might be the source for medical bills in retirement.  However, she still has school debt, credit card debt and a car payment. She thinks that she will want $4000 per month in retirement after inflation adjustments are made. Let’s say she receives $100,000 in a 401k at the divorce, $20,000 in an IRA, and a small defined benefit plan that will pay $250 a month for her life when she is 67. Her predicted social security is $1500. So with social security at $1500 and the defined benefit plan at $250, she has $1750 of the needed $4000, so she has to make up $2,250 per month or $27,000 per year.. Let’s say her life expectancy is 88, but quite frankly it is good to plan for 100 so you do not out live your money. So that means the money needs to last for 33 years in retirement. The question is how does the divorcee plan for $27,000 per year for the 33 years? What is the amount of savings she will need to make up the $27,000.  At a planned withdrawal rate of  5 percent in retirement, this divorcee is going to need around $540,000  in retirement to meet her goal. At a planned withdrawal rate at retirement of 4 percent, she will need a nest egg of $675,000.  While a financial planner could do some allegedly precise calculations, here’s generally how the discussion will go. (I say allegedly because no one can be sure what inflation will be and what investment rate of return will be. Conservatively, the IRA should grow to at least $150,000 in 33 years. The $100,000 in the 401k should grow to make up the remainder of the needed money. So, the focus should be on investment vehicles that will turn the $20,000 in the IRA and the $100,000 in the 401k into $675,000 between now and retirement.

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By: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

Hammernik v. Comm’r, T.C. Memo. 2014-170, 2014 WL 4119398 (2014)

(a) Facts: A husband and wife were divorced in Wisconsin. In 2003, before the divorce, the husband’s business encountered hard times, and he withdrew $104,909 from his personal retirement account to pay living expenses.

The parties filed a joint income tax return for 2003. They reported the withdrawn retirement funds as income, and returned tax due of $15,058, but failed to pay this amount.

The divorce decree left the parties equally responsible for paying all federal tax debts.

The husband paid more than half of the tax debt, and sought innocent spouse relief from the remainder. The IRS granted only partial relief, and no relief from the tax on the retirement withdrawal. The husband appealed to the Tax Court.

(b) Issue: Was the husband entitled to innocent spouse relief from the tax on the retirement withdrawal?

(c) Answer to Issue: No.

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