After 40 years, Al and Tipper are calling it quits. Perhaps Tipper is tired of not having any heating or air-conditioning and trying to read in the dark? Who knows? Unfortunately, they are not alone in their age group because there seems to be a lot of folks in their 50's and 60's getting divorced.
Besides splitting up assets and liabilities (and sometimes paying the lawyers some hefty fees), there are other hidden considerations that can affect the now divorced couple.
Take the first-time home buyers credit. Imagine you just got divorced and the ex-wife got the home. You re-marry a gal who's never owned a home before. Can she get the credit? What if only your new bride buys the house? Sorry! The IRS says, "You're tainted". The law actually rewards those who do NOT get re-married right away. To get the credit, the "girl-friend" buys the house, and then you get married. You say, "That's stupid!" I agree. It's frustrating when voters in other states elect Congressmen that write these stupid tax laws. How do we convince New Yorkers to get rid of Charlie Rangel?
Another "gotcha" involves Social Security benefits. To collect Social Security benefits based upon an ex-spouse's earnings, the following minimum requirements must happen. 1) Your marriage must have lasted at least 10 years. 2) You must be divorced for at least 2 years. 3) Be unmarried. 4) You must be at least 62 years old. 5) Your ex must be entitled to Social Security retirement or disability benefits. Also, don't forget that Social Security benefits are the greater of whatever scenario you qualify for. (You might be eligible for higher benefits based upon your own earnings history, etc., thus check with Social Security and get everything they tell you in writing.)
Let's create a scenario where the husband, Al, has a higher earnings record over the marriage than his now "ex", Tipper. When he retires from giving speeches and getting Nobel Peace Prizes, Al's Social Security earnings will not be affected...he gets the same as he would have before the divorce. Tipper on the other hand gets a little bit different deal. She can still apply for benefits based upon Al's earnings record, but the Survivor Benefits that she would have been entitled to if Al stopped adding carbon gas to the atmosphere may be in jeopardy.
Here's the deal. If Tipper was divorced after she had her 60th birthday and after the divorce, Al became tree fertilizer, AND they had been married for at least 10 years, her Survivor benefits would be the same as if she were a widow at Al's demise. If she remarries before Al dies, she may still get those Survivor benefits, since she will be at least 60 years old.
Moral of the story? Divorce is not as easy as it looks. There is usually more to consider than just dividing up assets. Make sure you involve your CPA in any divorce proceedings.
• Kelly Bullis is a Certified Public Accountant with over 30 years of experience. Contact him at 882-4459.