In my previous article, I talked about the impact of divorce on your taxes and on selling your home. In this article I'll discuss:
* The impact of divorce on your Social Security and retirement benefits
* Whether your business should be considered an asset in your divorce settlement
The impact of divorce on your Social Security and retirement benefits
If you are divorced, but your marriage lasted ten years or longer, you can receive benefits on your ex-husband's lifetime earnings (even if he has remarried) if:
* You are unmarried;
* You are age 62 or older;
* Your ex-husband is entitled to Social Security retirement or disability benefits; and
* The benefit you are entitled to receive based on your own work is less than the benefit you would receive based on your ex-husband's work.
Because many family child care providers earn much less than their husbands, it's important to understand that you may be able to collect on your ex-husband's Social Security. Your benefit as a divorced spouse is equal to one-half of your ex-husband's full retirement amount if you start receiving benefits at your full retirement age (age 65-67 depending on when you were born).
The Social Security rules are complicated and I urge you to contact a financial planner or the Social Security office (www.socialsecurity.gov; 800-772-1213) so you understand what you are entitled to before your divorce is final.
If your former husband dies after your divorce him, you will still be entitled to receive survivor's Social Security benefits as early as age 60. If you have legal custody of a child under age 19, your child may also be entitled to survivor's benefits.
Most family child care providers are counting on income from their husband's pension or retirement plan to help support them in retirement. A divorce will jeopardize this future income and can unexpectedly throw a monkey wrench into your retirment plans.
If your husband qualifies for an employer's pension plan, be sure to include this asset in negotiating your divorce settlement.
Your settlement should also consider any IRAs that your husband has contributed to. The IRA funds you get as part of the divorce settlement won't be subject to the 10% early withdrawal penalty. If the funds are deposited directly into your IRA, you won't have to pay any income taxes on it until you withdraw it after age 59 1/2.
Whether your business should be considered an asset in your divorce settlement
I have heard from several child care providers who told me their husbands wanted to include the value of their child care business in the distribution of assets as part of their divorce settlement.
In my opinion, you should not agree to this.
Your business is based on your personal services. If you tried to sell your business, it would be worth very little to anyone else unless you continued to care for the children in the new business. Because of the personal nature of your work, parents are highly unlikely to continue care with the person who buys your business. There may be some value in your equipment, toys, children's furniture, and your business name, but nothing more than that.
In dividing your assets to help calculate child support and alimony payments, you should be looking at your business profit (income minus business expenses) and comparing it to your husband's gross income. Don't forget to include depreciation on the furniture and appliances in your home as part of your business expenses. The extra wear and tear on these items will mean you will have to replace them sooner.
If your husband tries to argue that some of your business expenses shouldn't be counted when determining your profit, respond by pointing out that he didn't argue about this when he got the tax benefit of these expenses while you were married.
See also my article, "Advice for Family Child Care Providers Going Through Divorce - Part I."
Image credit: http://divorcehelper.net/2012/07/joint-bank-accounts-in-a-divorce/
For more information, see my book Family Child Care Money Management & Retirement Guide.