Divorce and Social Security Benefits
Q: I have been told I am not eligible to collect Social Security as a divorced spouse until I have been divorced for two years. Is this true?-- C.Z.
A: Yes. A divorced person who was married at least 10 years to the same spouse is entitled to claim Social Security benefits on the ex-spouse’s account after the divorce has been final for two years. If the ex-spouse is alive, the claimant must be at least age 62, and at that age will be entitled to 37.5% of the wage earner’s benefits. If the ex-spouse waits until age 65 to claim benefits, the payment is 50% of the wage earner’s benefits. The wage earner need not be claiming benefits for the ex-spouse to be eligible.
If the wage earner is dead, the ex-spouse is considered a widow or widower. He or she may claim benefits at age 60 and is entitled to 71.5% of what the wage earner would have received. The percentage increases to100% if the ex-spouse is age 65 when benefits begin.
Ex-spouse benefits are based on the total contributions made by the wage earner during his or her working career, not just those made during the marriage.
People who have been married more than once may claim benefits against the ex-spouse with the largest Social Security account, provided the marriage lasted 10 years or more. However, as long as a person remains remarried, he or she may not claim benefits on the account of an ex-spouse.
Tracking Stock in Foreign Companies
Q: I recently purchased stock in three foreign companies. How can I track the shares’ movements?-- A.T.A.
A: If the stocks you purchased were in the form of American depository receipts, commonly known as ADRs, you can track their performance in the daily stock exchange listings in this and most other newspapers. At least 1,000 foreign companies, usually the largest and best known in the world, have taken the necessary steps to allow their stock to be traded in this way.
If you invested directly in a foreign company, you can check the foreign stock tables carried in such financial publications as the Wall Street Journal, Investors Daily and Barron’s.
Divorce Doesn’t Alter House Value
Q: My husband and I bought a house in 1954 for $25,000. We divorced last year. Should the house be valued as of the date of death of the marriage, just as community property is revalued when a spouse dies?-- G.F.
A: While the pain of a divorce is similar to that caused by the death of a spouse, the Internal Revenue Service treats the two events quite differently. It is true that upon the death of a spouse, the IRS allows the survivor to value both halves of their community property as of the spouse’s date of death, not its original cost basis.
However, this is not the case in divorce. Regardless of how assets are held, when the marriage is dissolved, the original cost basis remains unchanged. In your case, the house you received in the settlement still has its original $25,000 cost basis, plus the value of any additional permanent improvements you have made to it over the years.
Taxation on Inherited IRAs
Q: My wife inherited her mother’s three undistributed individual retirement accounts last year. The accounts were included in her mother’s estate and were subject to estate taxes. When my wife cashed out the accounts, she had to pay income tax on the entire distribution. Isn’t this double taxation?--R.A.R.
A: Despite any appearances to the contrary, our experts say the matter was handled correctly. If your tax return was properly completed, you were not taxed twice.
Here’s what should have happened. When your wife withdrew the funds from her mother’s IRAs, she was also permitted to deduct a portion of the estate taxes paid on those accounts. This deduction is permitted under Section 691 of the Internal Revenue Code. Check your tax returns to see whether you took this deduction. If not, you may still be able to file an amended return and claim a refund. The statute of limitations for amending a return is generally three years after the original return was due or filed, or two years from the date the tax was paid, whichever is later. Failure to file a claim within this period prevents you from receiving a refund, regardless of the validity of your claim.
Pension Taxed, No Matter Who Gets It
Q: I will roll over my company pension savings plan when I retire soon. My account has my own contributions as well as employer contributions in the form of company stock and a sizable amount of accumulated interest that has not yet been taxed. If I were to change ownership of the company stock to community property, would the stock be entitled to a full step-up in value upon the death of either my wife or me?-- R.K.B.
A: No matter how you hold title to your pension account, to the extent that either you, your wife or your heirs withdraw funds that were deposited on a pretax basis, those disbursements will be taxable. If the withdrawals are made after your death, the disbursements are considered “income in respect to a decedent,” and no matter who collects it, it is taxable. Remember, the deposits into this pension savings account--and the interest they have generated over the years--have not been taxed, and Uncle Sam isn’t about to let anyone withdraw this money without paying him his due.
