Financial Aspects of DivorceAn eXtension Webinar for

Military PFMP Professionals

Financial Security for All CoP• eXtension.org• eXtension Financial Security for All

Community of Practice• Significant content

– Frequently Asked Questions– Programs and Resources

• Online Learning– Web conferences– Began as chats

Military Family Learning Network• Multiple CoPs

– Such as: Child care, Family Development, Network literacy

• And our Team Personal Finance Training the Personal Finance Managers (PFMs)

Military Family Learning Network• Personal Finance Project goals:

– Provide on-going professional development to enhance the DoD baseline program

– Programs be accessible to Military PFMs at installations around the world

– Opportunity to earn Continuing Education Units (CEUs) to maintain AFC credential

– Create or enhance community among PFMs

Topics• Housing and Fore closure• February 2, 2012 11:00 AM Eastern • http://learn.extension.org/events/427

• Talking With Kids about Money• February 23, 2012 Time 2:30 PM Eastern• http://learn.extension.org/events/441

• Implications of Relatives Raising Children While Parents Are Deployed

• April 5, 2012, 2 PM Eastern• http://learn.extension.org/events/458

• Financial Aspects of Divorce• April 12, 2012, 11:00 AM Eastern• http://learn.extension.org/events/456

• Home Ownership: When Is The Right Time?• May 8, 2012, 2:30 p.m. Eastern• http://learn.extension.org/events/509

• 9 Skills of Couples Communication About Money• June 26, 2012, 2 p.m. Eastern• http://learn.extension.org/events/529

• Retire Ready: Financial Planning for Later Life• July 10, 2012, 2 p.m. Eastern• http://learn.extension.org/events/530

• Thrift Savings Plans: Retirement Planning for Military Families

• July 25, 2012, 1-2:30 p.m. Eastern• http://learn.extension.org/events/563

• Income Tax Return Filing Issues for Members of the Armed Forces

• August 28, 2012, 12:30-2 p.m. EASTERN• http://learn.extension.org/events/588

• Basic Money Management• September 25, 2012, 11 a.m. Eastern• http://learn.extension.org/events/61

Why Web Conferences?

• Engaging venue to reach larger audiences for – Educational outreach– Professional development

• Presentations are archived for additional viewing

• Post test supports CEU process integrity

Marketing • FSA Membership• State lists of agents• Department of Defense and the MFLN• Partners assisted too!

– NIFA (Thank you Susan)– Thank you Ken McDonnell, Director, American Savings

Education Council (ASEC), Employee Benefit Research Institute

• Twitter – @mikegutter– @moneytalk1– @dollardecisions

• Facebook

Making it Interactive• Use Adobe Connect• Audience can hear presenters, see a

picture, follow presentation or view other materials

• Can ask questions via chat box• Can respond to questions via chat box• Respond to poll questions to give real-time

feedback that can be seen by all.

Who Attended?

Live: 166 Recorded: 107

Disclaimer• The intent of this Webinar is to provide accurate,

research-based information

• The Webinar in no way purports to render legal, financial, or other professional services

• Viewers should consult an attorney that specializes in military divorces if legal advice or other expert assistance is required

Webinar Agenda

• 10-Question Pre-Test

• Divorce and Military Families

• General Divorce Financial Planning

• Military Divorce Financial Planning

• Key Documents Needed in a Divorce

• Resources for PFMPs

Divorce Process• Very fact based (case-by-case basis)

• Range of factors considered by courts

• NO “magic formula” for the appropriate division of assets (“equitable” does not mean “equal”)

• Decisions made within state guidelines (e.g., child support and community property)

• Federal and state laws must be followed

Divorce and Military Families• Divorce rates higher for military families than

for general U.S. population• 3.7% in 2011, up from 2.6% in 2001

– WSJ Article: http://kienkerlaw.com/global_pictures/Divorce%20Splitting%20Up%20a%20Rich%20Military%20Pension.pdf

• Divorce rate for women in the military is double that of men– Highest among military women with civilian husbands

– One reason: more support services for wives?

Common Divorce Financial Issues• Division of real property (e.g., house, land)• Division of personal property• Division of savings/investments• Division of debts• Will anyone pay alimony (spousal support)• Arrangement of child support payments• Income tax exemption for dependents• Post-divorce insurance coverage (e.g., life,

health, disability)

Common Divorce Non-Financial Issues

• Where the children are going to live

• Who will make decisions about the children and their well-being

– Physical custody: where children live (overnights)

– Legal custody: decision-making authority

• Where and when the other parent can visit the children

Military-Specific Divorce Issues• Federal laws (SCRA, USFSPA)

• Military paychecks (e.g., BAH allowances)

• Jurisdiction for filing divorce

• Child support process and compliance

• Child custody and visitation decisions

• Pension rights

• Military benefits

Smart Negotiation Strategies • Know what YOU want

• Know what your spouse wants

• Listen to the other side

– Learn things to further your interests

• Have a fall-back plan

• Never agree to anything that is unacceptable

• Get it in writing

Negotiation Planning GridMy goals in terms of property division are:

My spouse’s goals in terms of property division are:

My goals in terms of support are: My spouse’s goals in terms of support are:

My goals in terms of my children are:

My spouse’s goals in terms of children are:

Common “Hot Buttons”Men (and Employed Women): Pension and voluntary savings accounts (e.g., Thrift Savings Plan)•Emotionally tied to previous work history•“I [busted my butt, went to war, defended my country, risked my life, etc.] and she/he wants half of my pension. I don’t think so”

Women: Keeping a house and child custody•Tied to desire for stability for self and children•BUT…”home attachment” may not be as much an issue for military spouses used to frequent moves

Property DesignationsSeparate Property

– Acquired before marriage and NOT co-mingled

– Gift from someone other than spouse

– Personal injury awards, NOT co-mingled

– Inheritances, NOT co-mingled

– Designated in a prenuptial agreement as separate property

Property Designations

Marital Property– All property acquired by EITHER or BOTH

spouses during the marriage (and before the signing of a separation agreement or the commencement of a divorce REGARDLESS of the name in which property is held

– Community property is another term for marital property in nine states

Community Property States• Most property acquired during a marriage

is owned jointly and divided at divorce (except gifts and inheritances)

• Joint ownership is automatically assumed• AZ, CA, ID, LA, NV, NM, TX, WA, WI

Value of Property

• Fair Market Value (FMV)- price at which an item could be sold (e.g., garage sale, eBay)

• Depreciated Value- FMV as calculated from depreciation schedules for specific property

• Replacement Value- Cost to replace or purchase a new item

Debt Repayment• No matter WHO charged WHAT, a joint account

means BOTH spouses are legally responsible to creditors for debt repayment

• Creditors don’t care about divorce decree terms…they just want to be repaid!

• Ask creditors to close joint accounts– Try to convert to or reopen as individual account

• Got doubts? Request duplicate statements or online access to monitor ex-spouse’s compliance

Tax Considerations• Child support is neither deductible by the payor

nor included in the income of the recipient

• Alimony (spousal support) is taxable to the recipient and deductible as an adjustment to the payor’s gross income (to calculate AGI)

• Avoid attempts to “disguise” child support as alimony

Proceeds From Sale of a Home$_____ Estimated sales price

Selling expenses:

$_____ Realtor commission

$_____ Fix-up costs

$_____ Amount required to pay off loans(s)

$_____ Real estate transfer taxes

$_____ Other sales costs

$ ______ Estimated selling costs

$_______Estimated proceeds from sale

Staying vs. MovingCost of Staying in Home

– Monthly PITI

– Gas and electric

– Water and sewer

– Garbage pick-up

– Yard work

– Homeowner fees– Maintenance and repairs (1%

of market value)

– Other

Total Monthly Cost: $_____

Costs of RentingMonthly Costs

– Rent– Utilities– Other

Total Monthly Cost: $_____One-Time Costs

– Moving– Deposits– Utility hook-ups

Total One-Time Cost: $_____

Military Divorce Process• Combination of state laws and guidelines (e.g.,

child support) and federal laws • Servicemembers Civil Relief Act (SCRA)-

Active duty service member can request a 90-day stay of divorce action; can be extended (but not forever) if military duties interfere with participation

• Uniformed Services Former Spouse Protection Act (USFSPA)- Allows (but does not require) local courts to treat military retired pay as marital property and divide it in a divorce action

Military Divorces• Couples with marriages of all durations

– 20+ year careerists with substantial benefits• WSJ (3/10/12): Divorce: Splitting Up a Rich Military Pension

• Air Force Lt Colonel with 30 years of service gets a pension of $72,288

• http://online.wsj.com/article/SB10001424052970203961204577269460305366188.html

– Young service members in first/second enlistments• Older couples: pension is very valuable asset

• Enlist at 18, retire at 38, receive pension with COLAs for next 30? 40? 50? years

• No minimum retirement age

Military Pensions• USFSPA permits states to treat “disposable retired

pay” as marital property and divide it in a divorce settlement– Monthly retirement pay minus qualified deductions

• Does NOT automatically entitle a former spouse to any of service member’s benefit

• If > one divorce, direct payments to ex-spouses should not be > 50% of retired pay

• “First come, first served” basis

More About Military Pensions• 10-10 test for DFAS to trigger garnishment of

a military pension (like a civilian QDRO)– Married for at least 10 years

– 10 years of creditable service by member

– Must request DFAS to garnish retired pay

• Consider delaying divorce if close to 10 years

• If can’t meet 10-10 test, court can still award part of pension but military spouse is responsible for making payments

Other Military Benefits at Divorce• Non-military spouse loses ID card/installation privileges

(e.g., medical, commissary, PX) once divorce is final– Exception: unmarried 20-20-20 former spouse

– 20-20-15 spouse qualifies for medical benefits for one year from date of divorce or annulment but has no commissary and PX privileges

– Children maintain commissary/PX privileges; ex-spouse may request privileges to buy items for children

• Military housing must usually be vacated within 30 days after SM stops residing there– Installation commander may make interim decisions

Key Divorce Documents • Deeds to real estate• Mortgage papers• Tax returns (last 5 yrs)• Paycheck stubs (last 8)• Bank statements • Bills for living expenses• Proof of other income (e.g.,

unemployment, disability)

• Documents showing debt• Insurance policies

• Pension/retirement savings plan documents

• Business tax records• Inheritance documents• Insurance settlement

documents• Net worth statement• Household budget• Evidence of adultery

Divorce Finance Resources• Association of Divorce Financial Planners:

http://www.divorceandfinance.org/

• Institute for Divorce Financial Analysts: https://www.institutedfa.com/

• FPA (Financial Planning Association): Getting a Divorce: http://www.fpanet.org/LifeCrisis/GettingaDivorce/

• Military Money: When Love is a Battlefield: http://www.militarymoney.com/MilitaryLife/rights/tabid/115/itemId/2229/Default.aspx

Evaluation • 100% of respondents indicated the subject matter was what they

expected• 100% of respondents indicated the presenters were

knowledgeable and helpful• 89% of respondents indicated amount of material presented was

about right for the allotted time.• 97% of respondents indicated they will apply this knowledge in

their jobs• 97% of respondents indicated the difficulty level was appropriate• 100% of respondents indicated the webinar stimulated their

interest in the subject• The number of respondents indicating that they knew quite a lot

about the topic increased 58% after the webinar

Topic Suggestions Are Welcome

Please send ideas for topics or speakers to msgutter@ufl.edu

Questions?