“The problem with receiving unearned income through adjudication/settlement agreements In A divorce or dissolution when one receives social security income or social security disability income”
If you are a recipient of Social Security Income or Social Security Disability Income and you are going through a divorce or dissolution, your first step should be to find an attorney who has a good working knowledge of social security income and social security disability income. Spousal support, child support, and property settlements are often the main issues in any divorce or dissolution. Not only does spousal support, child support and property settlements encompass a great deal of the divorce or dissolution proceeding, but when one receives these things as part of a global settlement or adjudication, and they are also receiving social security income, social security disability income, Medicare, or Medicaid, one can find that what they want and what they get can be often two very different things.
When the Social Security Administration determines the amount a recipient receives, they subtract what is known as “countable income” from the SSI base rate. The Federal SSI base rate for 2012 is $674.00 for an individual. Countable income is anything that is received in cash or in-kind that can be used to meet the needs for food and shelter. This includes earned income (ie. money received form one’s labor), unearned income (money received from alimony, child support, relatives, etc.), and any resources (ie. real or personal property that an individual owns and could convert to cash which could be used for food or shelter). Please note that resources have several exemptions (ie. $2,000.00 in the bank for an individual, household goods, personal effects, items of cultural or religious significance, the principal residential home, proceeds from a sale of a home to be used to purchase another home, federal income tax refunds, etc.), all of which cannot be discussed in this short blog article. However, it is important to know these exemptions when you are trying to determine the best strategy for maximizing your benefits.
John T. Nicholson, a Social Security disability attorney in Dayton, Ohio, says, “If you are a Social Security recipient and will be going through a divorce or dissolution, be sure to retain a divorce lawyer familiar with both Social Security rules and family law. Most aren’t. Be smart and engage an attorney willing to structure the case to maximize your net benefits. If you don’t, you may be short changing yourself.”
To illustrate the issues surrounding social security income, I have included a small fact pattern.
Fact Pattern
Jane has a severe back problem that results in her inability to work. The only income she receives is from SSI in an amount of $674.00 per month. Matt and Jane are going through a divorce. Matt agrees to pay Jane $694.00 in spousal support as part of their settlement. Once Jane begins to receive spousal support she receives a notification in the mail stating that she is no longer eligible to receive social security income.
Why did this happen?
The reason this happened is that Jane’s countable income increased. The SSI program will determine that the $694.00 she received from spousal support could be used for food and shelter. They will first disregard $20.00 received from unearned income (ie. spousal support), as that is a standard deduction for what is known as unearned income. The remaining $674.00 will be included as “countable income” to reduce her monthly SSI check to $0.00. Therefore, even though Jane had an award of $694.00 in spousal support, the net benefit Jane will receive from the spousal support will be $20.00. This may have not been worth it to Jane if she considers the money she spent pursuing the spousal support, the length of time the spousal support will exist, and the new paperwork she will have to fill out to re-establish SSI once spousal support ends.
Is there a way for Jane to continue to receive her social security income and still receive the full benefits derived from spousal support?
Yes! Rather than supply a spousal support benefit to Jane in the form of cash, Matt could have paid her car bill, her cell phone bill, her car insurance, her cable television bill, etc. If Matt paid $500.00 towards her monthly car bill and $100.00 towards her monthly cell phone bill, and $74.00 towards her monthly car insurance, Jane could retain the full $674.00 received from SSI and still receive the benefit of spousal support. The money used to pay her car bill, cell phone bill, and car insurance does not count towards food or shelter and will therefore not be counted as countable income.
The above fact pattern is a rather simple example of the types of problems that can arise when one receives social security income and spousal support. When you include or are dealing with child support, Medicaid benefits, Medicare benefits, Social Security Disability, a spouse who does not want to help you maximize your benefits, a marital home, lump sum payments, in-kind benefits (ie. paying the mortgage), and many, many other things, you can find yourself in a very confusing situation.
A family law attorney with a strong working knowledge of social security income and social security disability can help you through this confusing maze of rules by strategically and intelligently crafting your divorce case or settlement proposal in a manner that will result in you receiving the greatest total benefits possible.
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