The Federal Government seems to like ten-year rules. Here is a half century (or five ten-year rules!) for family law practitioners to consider when negotiating the division of a community or support during a divorce in Louisiana.
1. Social Security Spousal Benefits
According to the Social Security Administration, the average retirement beneficiary receives 40% of their retirement income from Social Security. Social Security makes a big difference in divorcing couples’ retirement, especially if there is a disparity between the spouse’s income. To qualify to receive a spousal benefit a marriage must last ten years or longer. As this is measured from the date of marriage to the date of divorce, not termination of the community, family law practitioners should consider delaying a divorce if close to the ten-year period. If a spouse has been married and divorced for ten years more than once, they can choose which of the spousal benefits they would like to collect. As the future earnings of an ex-spouse can increase the spousal benefit available, family law practitioners may choose to wait until the marriage has lasted more than ten years, even on second, and subsequent marriages, to maximize a client’s future spousal benefit. Family law practitioners should also be aware that the Social Security Spousal Benefit can be eliminated or reduced if a spouse is subject to the Government Pension Offset Rules.
2. Social Security Credits
A spouse must earn at least forty Social Security Credits to be eligible to receive social security benefits. Since 1978 individuals can earn up to four credits a year, so after ten years most individuals have enough credits. For 2022, an individual must earn $1,510 in a quarter to earn one credit. Credits are based on total wages and self-employment income. However, family law practitioners should be aware that not every kind of work counts. The most common exception that we see in our practice is that the wages of Louisiana State Employees who do not participate in Social Security do not qualify for Social Security Credits. In such cases even if the state employee has forty Social Security Credits their Social Security Benefit is reduced if the employee has less than thirty years of substantial earnings under the Windfall Elimination Provision. The combination of the Windfall Elimination Provision and Government Pension Offset can reduce a Louisiana State employee’s Social Security benefit and family law practitioners may consider making a claim to offset other assets under Louisiana Revised Statute 9.2801.1 if a Louisiana State pension is being divided and a Louisiana State Employees Social Security benefit is reduced.
3. Military Pensions
In order for the Defense Finance and Account Service (DFAS) to accept a Military Pension Division Order (MPDO), the military member must have been married to his or her spouse for 10 years which overlaps with ten years of military service. This is known as the 10 and 10 rule. Family law practitioners should be aware that this rule does not prevent the division of a military retirement, it prevents DFAS from accepting an MPDO for direct payment that may include a spousal survivor benefit plan. Alternatives are direct payments by the military member or a garnishment order for spousal support, neither of which can include a survivor benefit. Family law practitioners should also be aware that if a reservist earns less than fifty drilling points in a year, the year does not qualify as a year of service under the ten and ten rule.
4. FERS Basic Employee Death Benefit
If at the time of divorce, the employee covered by FERS had at least eighteen months but less than ten years of creditable service, the former spouse is only entitled to a Basic Employee Death Benefit. The Basic Employee Death Benefit is equal to one-half of the employee’s final salary (or average salary if higher), plus $15,000, which has increased to $34,991.07 for 2021 under Benefit Cost of Living Adjustments. As the Basic Employee Death Benefit is less than the standard death benefit, family law practitioners should use caution when deciding whether to terminate a community if the employee spouse is approaching ten years of service.
5. Required Ten Year Distributions of Inherited IRAs
Under the Secure Act, the funds in an inherited IRA received by a non-spouse beneficiary (adult children, grandchildren) must be withdrawn by the end of the 10th year after the original owner passed. The IRS does not require distributions from an inherited IRA to be taken on any schedule as long as all funds have been withdrawn from the account by December 31st of the tenth year following the date of the death of the IRA’s original owner. Inheritors of IRAs often make distributions throughout the ten years to reduce their income taxes, rather than making one distribution in the tenth (final) year. Also, as IRA Distributions can be made directly to a taxable investment account in-kind, as well as by deposit of funds into a checking or savings account, and non-taxable distributions can be made from ROTH IRA accounts, review of activity in the IRA Account as well as tax returns and Form 1099’s is important when calculating income for support.
Hoffman Divorce Strategies has been assisting family law attorneys and their clients since 1999 to prepare defensible financial reports for negotiation or litigation and understand the quality and long-term impact of settlement proposals. With our unique experience in accounting, financial planning, and divorce financial analysis we help attorneys manage and win more cases for their clients. See our website at https://hoffmandivorcestrategies.com/for-attorneys/ or call us at 985-674-1120 for more information.