Gary Smith is the owner of WealthSmith Financial, a financial planning firm, located in Portland’s Old Port. Gary is a Certified Financial Planning Professional, a Chartered Financial Consultant, and an Accredited Investment Fiduciary. He is a great resource if you have questions about your investments or retirement. Gary has also done some great work with individuals who are going through a divorce by helping them get back on their feet financially. I am sharing his post about things you should consider if you are getting divorced and you are a participant in Maine State Retirement. Without further ado, here is Gary’s article:
ARE YOU 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.
- 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
Here is a link to the original article.
If you are contemplating divorce and you have or will have Maine State Retirement…read on!