Here is an article written by my Certified Financial Planner, Gary Smith, owner of WealthSmith Financial Planning, LLC, about an issue that affects any Maine teacher or government employee who is married to or who intends to marry a person who does not participate in Maine Public Employee Retirement System. Gary, located in Portland, Maine, is my go-to professional when I have questions about the best way to structure a divorce settlement to meet my client’s future financial needs. I trust Gary Smith with my personal finances and have never been disappointed. More importantly, I know that everyone I refer to him is given top-notch attention and advice.
GETTING DIVORCED IN MAINE & YOU HAVE MAINE STATE RETIREMENT (MPERS)….
DECK IS STACKED AGAINST YOU…..READ ON!
My name is Gary Smith. I own WealthSmith Financial Planning, LLC in the Portland Old Port. As a CERTIFIED FINANCIAL PLANNER™ professional I often receive calls from people who are thinking about filing for divorce. It is, by the way, a good idea to see a financial advisor BEFORE you see a divorce attorney or mediator so that you will have your ducks in a row before you get behind the wheel of the divorce process.
There are many parts of divorce that are not fair, but one area that stands out as REALLY UNFAIR is the way your “pension” with Maine State Retirement is treated. To best explain this issue I will draw reference to a recent client meeting that I had, here are the details!
Samantha Smith (fictitious name) was divorcing David Dumbrowski (also, fictitious name).
Samantha is a school teacher, and David is a website designer. Samantha had no retirement other than her Maine State Retirement, David has his social security and a 401k from the company that he has worked for over the last 20 years with a $400,000 account balance.
For those of you who know someone who is retired and on Maine State Retirement you know that they fall under the WEP or the GPO of the social security laws. I won’t go into detail on this, but what that means is that you receive a severely reduced social security benefit because you have Maine State Retirement (actually affects other government workers too, but I’m focusing on MPERS in this blog). Under the WEP or the GPO, we see the social security benefit that you WOULD HAVE RECEIVED, reduced to around $300/month (it could be higher or lower but this is about the average that I have encountered). (1)
The way the law works with divorce is that the Maine State Retirement is treated as an asset, but the social security benefit is NOT treated that way. So, given the details for Samantha and David, above, what does this mean for the two of them? (2)
Samantha’s Maine State Retirement is run through a present value calculation to come up with a lump sum value today (if you don’t have a financial advisor counseling you on HOW the opposing party came up with this value you could be at a great disadvantage, but that is a discussion for another day). In Samantha’s case the present value was roughly equal to David’s 401k, about $400,000.
Long story short, David gets to keep his 401k of $400,000, and David gets his social security benefit of about 2,000/month.
Samantha keeps her Maine State Retirement (roughly the equivalent of David’s social security benefit), and is entitled to NONE of David’s 401k. And when Samantha applies for social security she can expect a severely reduced social security, again, in this case about $300.00/month.
What would be FAIR is if Samantha’s Maine State Retirement was treated exactly as David’s social security, and THEN the 401k was split (perhaps minus the small present value of Samantha’s $300 social security benefit), but that is not what happens when it comes to a divorce where one party has Maine State Retirement.
Make sure you are financially prepared to get divorced before you start the process. I would advise you to meet with a CERTIFIED FINANCIAL PLANNER™ professional who can help you decide if it is time to see an attorney or a mediator.
Stay tuned for next month’s blog when family lawyer, Susan Schultz, discusses the role that prenuptial agreements can play in protecting your financial wellbeing if you do have Maine State Retirement. http://www.schultzfamilylawer.com.
About the Author:
Gary Smith is the founder of WealthSmith Financial Planning, LLC, and he has been helping clients navigate the rules and regulations surrounding financial services industry for 24 years. His broad knowledge in the employer sponsored retirement plan market, financial planning, estate planning, and elder law issues make him a trusted advisor to clients looking to navigate an increasingly-complex universe of options. He is also sought out by the national media for his insights into financial issues, recently providing expert commentary for articles on CNBC.com and in Financial Advisor Magazine.
As a wealth manager and investment advisor representative, Gary provides comprehensive financial and retirement plans for his diverse clientele, taking into account the myriad financial, regulatory, and tax issues relevant to individual financial planning. Utilizing a broad network of specialized attorneys and accountants, he offers a “team” approach that emphasizes holistic services tailored to the needs of each client.
Gary is a Certified Financial Planning Professional, a Chartered Financial Consultant, and an Accredited Investment Fiduciary. You can reach out to him with questions or inquiries at firstname.lastname@example.org or (207) 850-0075. His office is located at 75 Pearl Street, Suite 216; Portland, ME 04101. Learn more about WealthSmith Financial Planning at http://www.wealthsmithfp.com.
- GOV – WEP & GPO
- MAINE SUPREME JUDICIAL COURT – Decision 2009 ME 13 – Docket Cum-08-371. Argued 1/13/09 Decided 2/10/09. Skibinski V. Skibinski