An individual’s Social Security Benefits Statement can be a valuable resource in your divorce financial planning. Make sure to gather copies of the most recent statements available and we can help you uncover a wealth of financial knowledge.

1. Earnings and employment history. The Social Security Statement is a great place to look for a historical average of employment earnings. It is valuable to understand the earnings history and trajectory of both parties in a divorce. Producing a copy of a Social Security Statement for a mother who has been a full time mom for 18 years creates a powerful exhibit to demonstrate the need for ongoing support from the working spouse. Likewise it can demonstrate the trajectory of an individuals income either up or down.

2. Estimated retirement and disability benefits for long term, post divorce financial planning purposes. Understanding the long term cash flow is very important when negotiating a financial settlement. Having details of the Social Security administration’s estimated benefits can help me as a planner and my client’s understand the future of cash flow even if it may be 15 years in the future.

3. If there is a public pension. A worker who participates in California State Teacher’s Retirement System (STRS) or California Public Employees Retirement System (PERS) and many other governmental retirement systems may not have been paying into the Social Security system. Some may pay into Medicare but not Social Security. You can see this if the worker’s statement has wages in the Medicare taxed earnings column but not the Social Security column.

4. Derivative benefits available to a former spouse. In long term marriage (over 10 years according to the Social Security administration) a divorcee can receive derivative benefits on the record of their former spouse. The derivative benefit is equal to one half of the former spouse’s benefit which can be found on their annual statement. This is useful for long term planning and can be important in long term spousal support negotiations.

5. Social Security and Medicare tax details. We often need to estimate incomes for negotiation purposes. A common mistake occurs when the 6.2% Social Security tax is applied to the worker’s entire income. Instead the tax should be applied only to the first $106,800 in 2011. If you apply the tax to $300,000 of income the net, after tax income will be understated by $11,978 per year. In 2012 the wage base increase to $110,100.

6. Possible application of Government Pension Offset Provision (GPO) or Windfall Elimination Provision (WEP). Those workers mentioned in #3 above may find themselves subject to the GPO or WEP and end up receiving less benefits than they expected if not careful. It is always important to understand how these government provisions affect an inidividual in divorce. The Social Security Statement even talks about them in the bottom right hand corner of page 2 in it’s current lay-out.

7. Existence of tax deferral vehicles such as deferred compensation plans and retirement accounts. If the numbers reported under Medicare wages don’t match those reported in the Social Security earnings column there may be tax deferral vehicles like deferred compensation plans that are being used. The worker may also have simply hit the Social Security wage base maximum after which Social Security taxes are no longer incurred but Medicare taxes are.

8. Mis-reported income. In California an individual involved in divorce proceedings must file a declaration of disclosure detailing their income and expenses and sign it for accuracy under penalty of perjury. This doesn’t keep people from reporting incorrect figures. If the Social Security Statement doesn’t match what is reported on the declaration their better be an explanation.

Unfortunately Social Security Statements are no longer mailed to you if you are under 60 years of age. The Social Security Administration is providing an online version of taxpayers’ Social Security statements. The online version is now available at www.socialsecurity.gov/mystatement.

An experienced Divorce Financial Planning expert can find a lot from otherwise simple and easily available documentation. Imagine what I can find with a complete and accurate set of financial documents.