Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Military Retirement Payments Divorce Problem
Old 04-06-2009, 06:06 PM   #1
Confused about dryer sheets
 
Join Date: Apr 2009
Posts: 5
Military Retirement Payments Divorce Problem

Was wondering if anyone would like to help me with this Military Retirement Payments problem I have:

Bob and Linda Smith are divorcing after 41 years of marriage. That date of divorce will be April 1, 2009.

Bob is retired military currently receiving $4,500 a month in traditional (or High-3) military retirement benefits. Bob was born April 1, 1949 and Linda was born April 1, 1951. They married on March 31, 1969, and Bob joined the army the next day. He retired 20 years later on March 31, 1989.

Bob, because he didn't want to pay for it, convinced Linda years ago to sign away her right to SPB, which is a type of military insurance that would assure that Linda continued to receive Bob's military retirement payments in the event that he died. If Linda chooses to participate in Bob's retirement benefits, and he dies, all benefits to her would cease. The only way to mitigate this is to purchase a life insurance policy on Bob that would pay her enough to ensure her financial future. Unfortunately, Bob is a smoker and Linda cannot afford the cost of such a policy.

Bob also doesn't really want Linda participating in his retirement (although there is some debate over whether he has a choice) so he is willing to "buy her out" of his policy.

Military benefits increase in January of each year by what is known as a COLA, or cost of living adjustment. This is a federally mandated increase that is tied to changes in the Consumer Price Index. The increase this year was a whopping 5.8%.

The question that needs to be answered: How much would he have to pay her today assuming all future COLA's will equal the average COLA of the last 10 years?

You should use March 30, 2009 as the date for your discount rate. Also assume that the effective tax rate will be 18%. Also assume that Bob and Linda are Caucasian.

Thanks in advance to anyone can help me with this at all. Above is ALL the information available to me to answer this question.
__________________

__________________
soccer866 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-06-2009, 06:11 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Some people may like hypothetical questions being given to them to solve for free.

Maybe some of them will help you. The rest of us might prefer to know who you are, and why this is important to you.

Ha
__________________

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is online now   Reply With Quote
Old 04-06-2009, 06:12 PM   #3
Thinks s/he gets paid by the post
Rustic23's Avatar
 
Join Date: Dec 2005
Location: Lake Livingston, Tx
Posts: 3,624
I'm not sure I have the answer for you, but if I were Linda, I would ask for 1/2 of his retirement pay. I would also ask for him to furnish an insurance policy to cover 1/2 of his pay should he die. Seems to me that she could make the case that she only signed away her survivor benefits because she thought she would inherit the bulk of his estate as his wife. Now that they are divorcing, she, most likely, will not inherit the estate, so he should pay for the insurance.
__________________
Rustic23 is offline   Reply With Quote
Old 04-06-2009, 06:14 PM   #4
Confused about dryer sheets
 
Join Date: Apr 2009
Posts: 5
It's basically just a future payments problem but I don't know where to start.
__________________
soccer866 is offline   Reply With Quote
Old 04-06-2009, 06:19 PM   #5
Moderator Emeritus
Bestwifeever's Avatar
 
Join Date: Sep 2007
Posts: 16,372
This sounds like a problem on a test--is it?
__________________
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
Bestwifeever is offline   Reply With Quote
Old 04-06-2009, 06:24 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
freebird5825's Avatar
 
Join Date: Feb 2008
Location: East Nowhere, 43N Latitude, NY
Posts: 9,017
You may find this page to be interesting. I tried to find a historical record of actual retired military COLAs, but came up empty handed.
2009 COLA for Retired Pay - Military Benefits - Military.com
__________________
"All our dreams can come true, if we have the courage to pursue them." - Walt Disney
freebird5825 is offline   Reply With Quote
Old 04-06-2009, 07:31 PM   #7
Thinks s/he gets paid by the post
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 2,398
Good grief, OP.

First, if the couple got married in '69 and are divorcing in 09, that makes 40 years, not 41.

Second, the phrase "date of divorce will be 4/1/09" is nonsensical. 4/1/09 is a date in the past, yet you're using the future tense.

Third, you suggest the problem should be solved using the average COLA over the past 10 years yet you don't provide that number. People here might be willing to help, but I'm not looking that up on the web for ya.

Finally, here's the real answer:

A. If Bob and Linda aren't actually divorced, then the buyout is whatever Bob and Linda can negotiate between the two of them, possibly with the help of a mediator or their attorneys.

B. If Bob and Linda are divorced, then the buyout is whatever is decreed in the court order, unless Bob wants to go to jail for contempt.

C. If this is a homework problem, ask your professor or TA for help.

2Cor521
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is offline   Reply With Quote
Old 04-06-2009, 08:51 PM   #8
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
What is this, the homework hotline?!? And a cheery "how do you do" to you too!

Let me take a thrashing break to suggest that you go someplace where there's a larger population of military veterans. Some of them might even care to do your work for you. You could try DFAS (Military Pay) or, as Freebird has suggested, Military.com.

OK, back to the thrashers.

BTW, Freebird, I found this 14-year history over at MOAA.
http://www.moaa.org/lac/lac_issues/l...d/lac_cola.htm

Tom Philpott put this article up at Military.com last year:
http://www.military.com/features/0,1...ml?wh=benefits

If anyone else has a table of military retiree COLAs, especially as they compare to military pay raises, I'd love to see it!
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 04-06-2009, 09:57 PM   #9
Confused about dryer sheets
 
Join Date: Apr 2009
Posts: 5
Average COLA is 3.02 from that link provided. I still can't figure out how to put all that together. I was informed to not compound each year, and just start with year 1 and get each years present value up to the life expectancy, then sum them. But whose life expectancy? If it was the mans it would be 20.9 years, and if it was the womans it would be 24.1 years.

Thank you for your responses so far. And does anyone know how to do these present values? I was also told to use a Treasury Yield Curve Rate, and the one I need to use is the 20 year which is 3.82
__________________
soccer866 is offline   Reply With Quote
Old 04-06-2009, 10:22 PM   #10
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,971
Sounds to me that she signed away her rights to any money. She signed the paper now she has to accept the consequences.

I'm not doing the math for you.
__________________
aaronc879 is online now   Reply With Quote
Old 04-06-2009, 11:53 PM   #11
Confused about dryer sheets
 
Join Date: Apr 2009
Posts: 5
Anyone know how to do this year 1 PV?
__________________
soccer866 is offline   Reply With Quote
Old 04-07-2009, 06:03 AM   #12
Thinks s/he gets paid by the post
OAG's Avatar
 
Join Date: Jun 2006
Location: Central, Ohio, USA
Posts: 2,598
He should plan on "giving up" 44% (which I believe it the correct percentage) of his "retirement pay" to Linda for starters. Don't know about the "buy out" stuff or even if it will work for military retired pay. I guess the simplistic way is to purchase an annuity that would payout to "Linda" $1,980 a month (increased from 2009 at the CPI rate) for her life (after "Bob's" death, assuming he predeceases her).
__________________
Vietnam Veteran, CW4 USA, Retired 1979
OAG is offline   Reply With Quote
Old 04-07-2009, 07:34 AM   #13
Thinks s/he gets paid by the post
Rambler's Avatar
 
Join Date: Jul 2007
Posts: 2,243
Former boss was a retired 2-star. Half of his retirement pay goes to his ex-, and aout 70% of their assets (substantial) went to her. I don't feel like doing PV calculatons this late in the evening....sorry. (is it homework?).

R
__________________
Find Joy in the Journey...
Rambler is offline   Reply With Quote
Old 04-07-2009, 08:34 AM   #14
Thinks s/he gets paid by the post
Rustic23's Avatar
 
Join Date: Dec 2005
Location: Lake Livingston, Tx
Posts: 3,624
use the pv function in excel.
__________________
If it is after 5:00 when I post I reserve the right to disavow anything I posted.
Rustic23 is offline   Reply With Quote
Old 04-07-2009, 08:42 AM   #15
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,435
Here's my answer. Please let me know where I missed points so I can review for the final.

Edit: Sorry, can't make it too easy for you. Also, there was a typo in one of my formulas, so the total was wrong.

However, the simple formula for present value is available here: http://en.wikipedia.org/wiki/Present_value

And the treasury yield curve is here:
http://www.ustreas.gov/offices/domes...te/yield.shtml
__________________
soupcxan is offline   Reply With Quote
Old 04-07-2009, 10:36 AM   #16
Confused about dryer sheets
 
Join Date: Apr 2009
Posts: 5
Soup, can you show me your functions? I really appreciate your help.
__________________
soccer866 is offline   Reply With Quote
Old 04-07-2009, 01:39 PM   #17
Thinks s/he gets paid by the post
 
Join Date: Jul 2004
Posts: 1,072
From experience:

The state in which you are divorced has their own ideas as to how retirement assets will be divided...DFAS has a booklet on how they will calculate that. Rule of thumb - after 10 years of marriage, spouse usually gets 50% of retired pay that would have been attained had one theoretically retired at that rank...and that would include COLA. As for SSB, that's merely a survivor benefit - i.e. if pensioner dies, then a percentage of the pension is provided for the insurance beneficiary. What the wife has 'signed away' is the pension benefit if the pensioner dies. He/she didn't sign away her rights as a divorcee who by the law can be entitled to part of her ex-husband's/ex-wife's assets if they get divorced.

In your theoretical case, he/she could be entitled to 50% of his retired pay at the rank he/she attained when he retired....in other words a full 50%.

By the way - did you notice the he/she - yes, the sword cuts both ways on this one.....
__________________
Deserat aka Bridget
“We sleep soundly in our beds because rough men stand ready in the night to visit violence on those who would do us harm.” - George Orwell/Winston Churchill
deserat is offline   Reply With Quote
Old 04-07-2009, 02:46 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Quote:
Originally Posted by deserat View Post
From experience:

The state in which you are divorced has their own ideas as to how retirement assets will be divided...DFAS has a booklet on how they will calculate that. Rule of thumb - after 10 years of marriage, spouse usually gets 50% of retired pay that would have been attained had one theoretically retired at that rank...and that would include COLA. As for SSB, that's merely a survivor benefit - i.e. if pensioner dies, then a percentage of the pension is provided for the insurance beneficiary. What the wife has 'signed away' is the pension benefit if the pensioner dies. He/she didn't sign away her rights as a divorcee who by the law can be entitled to part of her ex-husband's/ex-wife's assets if they get divorced.

In your theoretical case, he/she could be entitled to 50% of his retired pay at the rank he/she attained when he retired....in other words a full 50%.

By the way - did you notice the he/she - yes, the sword cuts both ways on this one.....
This intersting, but I don't think I understand. Can I just ask if this is correct? Say SillyMan divorces wife, Major Gutierrez, after 10 years of marriage. She does very well, and finally retires 13 years later as an O-6 with 23 years in.

I assume that she must retire before her ex can get anything. Correct? Would he then get 1/2 of what someone who retires after 23 years as an O-4, or 1/2 of her actual O-6 retirement?

If he gets only half of O-4 retirement pay, would she then get O-6 minus (1/2 of O-4)?

This seems very convoluted, but it is the best I can do to frame the question.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is online now   Reply With Quote
Old 04-07-2009, 04:13 PM   #19
Full time employment: Posting here.
friar1610's Avatar
 
Join Date: Jun 2002
Posts: 820
Quote:
Originally Posted by soccer866 View Post

Bob also doesn't really want Linda participating in his retirement (although there is some debate over whether he has a choice) so he is willing to "buy her out" of his policy.
I didn't read all the posts in this thread, so this might have been answered better than I can. According to Federal law, military pensions are considered "property". She is entitled to 50% of his retired pay whether he wants to pay it or not. If she agrees to a "buy out" that's another matter. Not knowing the situation, not sure why she'd want to accept that.
__________________
friar1610
friar1610 is offline   Reply With Quote
Old 04-07-2009, 04:57 PM   #20
Thinks s/he gets paid by the post
 
Join Date: Jul 2004
Posts: 1,072
Quote:
Originally Posted by haha View Post
This intersting, but I don't think I understand. Can I just ask if this is correct? Say SillyMan divorces wife, Major Gutierrez, after 10 years of marriage. She does very well, and finally retires 13 years later as an O-6 with 23 years in.

I assume that she must retire before her ex can get anything. Correct? Would he then get 1/2 of what someone who retires after 23 years as an O-4, or 1/2 of her actual O-6 retirement?

If he gets only half of O-4 retirement pay, would she then get O-6 minus (1/2 of O-4)?

This seems very convoluted, but it is the best I can do to frame the question.

Ha
It could be either - depends on how good the lawyer is....I've seen both. Yes, she must retire before ex can collect. A good lawyer would have him getting 50% of the 10 years worth of the O-4 pension. And to get what that would be one would need the excel and NPV-PV-FV calculations and it's too late for me to do that right now :-)
__________________

__________________
Deserat aka Bridget
“We sleep soundly in our beds because rough men stand ready in the night to visit violence on those who would do us harm.” - George Orwell/Winston Churchill
deserat is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Military Retirement SonnyJim Young Dreamers 22 09-20-2009 10:47 PM
Military Retirement from USAA mickeyd Other topics 8 03-14-2008 03:52 AM
SERIOUS problem with TaxCut for military WM Other topics 9 02-17-2008 02:27 PM
Mortgage payments after Early Retirement walkinwood FIRE and Money 19 04-28-2007 07:45 PM
Divorce, Net Worth and Early Retirement GMueller FIRE and Money 80 10-17-2006 11:31 AM

 

 
All times are GMT -6. The time now is 10:14 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.