Divorce Rich with Jacki Roessler, CDFA
Welcome to the Divorce Rich Podcast! Join your host, highly sought-after speaker and experienced Certified Divorce Financial Analyst, Jacki Roessler, CDFA in this engaging and down to earth show. Along with her guests, Jacki offers clear and detailed advice to improve your financial decisions before, during and after divorce so you can survive divorce rich! New episodes are posted every Thursday! You can reach Jacki through her Michigan-based firm, Roessler Divorce Consulting, located at 600 S. Adams, Suite 300, Birmingham, MI 48009 or by email at jacqueline@roesslerdivorce.com.
Divorce Rich with Jacki Roessler, CDFA
Divorce Rich Snack: Decoding Payroll Stubs: Your Divorce Money Detective Guide
Understanding payroll stubs is a crucial yet often overlooked skill during divorce proceedings. Jacki breaks down how to read both your and your spouse's payroll documentation to ensure you're getting accurate financial information for support calculations and settlements.
• Difference between gross pay (what's earned before deductions) and net pay (what's deposited in your account)
• Federal and state tax withholdings and how to spot potential overwithholding
• Understanding Social Security withholding caps and their impact on paychecks throughout the year
• Health insurance, 401(k) and other deductions that affect net pay
• How to calculate reasonable federal tax withholding percentages
• Year-to-date totals and their importance in cross-checking against W-2 forms
• Box 5 on W-2 forms shows Medicare wages, often the best reflection of true gross earnings
• Importance of year-end payroll stubs for breaking down different income sources
• Four power tips: review all stubs, keep copies of everything, look beyond take-home pay, and learn the payroll system
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Welcome to the Divorce Rich Podcast. I'm your host, jackie Ressler. I've been a certified divorce financial analyst for 28 years, helping clients and their attorneys navigate the often complex and confusing financial issues in divorce. If you're in the process of, or considering, divorce, now is the time for you to take a deep breath and give yourself permission to find clarity on the financial issues you're facing. Rich means many things to many people.
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Speaker 1:Along with my guests on this podcast, I will be bringing you a wide variety of information so that you can make sound and informed financial decisions for your financial future.
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Speaker 2:Hi and welcome back to the Divorce Rich Podcast. I'm your host, jackie Ressler, and today we're going to be talking about something that seems like it's very simple, but it's actually very empowering once you get a handle on it. It's how to read a payroll stub yours and your spouse's, or your ex-spouse's, because, let's be honest, whether you're filing for divorce, negotiating child support or just trying to get clear on where the money's been going, you need to know how to follow the paper trail. So let's break it down. We're going to start really simple. What is the difference between gross pay and net pay? Your gross pay is what you earn before deductions. Your net pay is what you get to keep. Same goes for your spouse. If they tell you I only take home $4,000 a month, that's their net pay, but that's not what they earn and that's not what's going to go into the child support formula, their gross pay could be much higher and it's what matters, again, for things like spousal support, child support and even dividing assets.
Speaker 2:When we start talking about deductions, the first, the biggest ones, are going to be the federal taxes and, of course, state taxes. If you live in a state where you pay state income tax not everyone does the federal income tax. That's going to be based on your tax bracket and your tax filing status and it's based on what you tell your employer to withhold by filling out what's called a W-4 form. Now, as far as social security taxes go, social security taxes are 6.2%, but that's only up toa maximum cap. Once you hit that cap, you are no longer taxed towards Social Security and so if you look at someone who has a high income and you're looking at a net payroll stub from March of the year instead of November, they might have more withholdings because they're still withholding that 6.2%. Once they hit that maximum cap for the tax year, that is going to be a zero line item on their future payroll stub for that calendar year. So it's helpful sometimes to take a look at a later payroll stub during the year and also that gives you a better idea of what their year to date income is. Health insurance, if you participate, or your spouse does, through a work plan, 401k or retirement contributions, even garnishments, and then there's voluntary withholdings. Now here is a power tip you want to watch for over withholding If your spouse is having extra federal taxes taken out, which you can do they might be intentionally reducing their net pay.
Speaker 2:It's a way to make their income look lower on paper during a divorce or support negotiation for this tax year and your spouse is overwithholding on their federal income tax. That means they're taking out more than they have to and you end up filing single or separately whether that's head of household or single for tax year 2025 or whatever year that you're listening to this episode in. They're going to get 100% of the refund and you might not share in that unless you negotiate for that. So you want to take a look at, make sure that the withholding amount seems like it's reasonable. So that begs the question what is reasonable? How do you know if it looks reasonable if you're not used to looking at payroll stubs?
Speaker 2:What I want you to do is I want you to take let's look at, just for this pay period. You're going to take a look at the federal taxes withheld and I want you to take let's look at, just for this pay period. You're going to take a look at the federal taxes withheld and you're going to take that number and you're going to divide that number by the total pay, the gross pay for that period and you're going to come up with with a fraction. If you divide it on your calculator, you'll get something with two decimal points. Let's say you end up with 0.20. You're going to take that and that's 20%. So if it's 0.25, that's 25%. If it's, let's say, you come up with a number like 0.50 or 0.40, 50%, 40%. That would be a very, very high federal tax withholding and that might raise a red flag.
Speaker 2:I've also seen payroll stubs where somebody is withholding 5% and their spouse didn't know that they were under withholding and that they're going to be filing joint for the year. That's going to be a problem. So you always want to take a look at the other person's payroll stub If you're not sure if it looks reasonable or not. This is a good time for you to reach out to your tax preparer or a certified divorce financial analyst or even your financial advisor. Look for a line that says additional withholding or ask to see their W-4 form. If they've checked, withhold extra. That is a red flag. So you can get the W-4 form if your attorney is sending a subpoena out to the employer for their employee record and that's a form that every employee has to fill out to let the company know how much they want withheld on federal taxes. And yes, it is legal to overwithhold, but that doesn't mean that it's fair. Your attorney should absolutely know about it if you think that your spouse is overwithholding.
Speaker 2:Now let's talk about year-to-date totals and how to cross-check against a W-2. Your spouse's payroll stub, or your own, will show year-to-date gross income. Remember that's pre-tax, pre-deduction, year-to-date net pay and year-to-date taxes paid. These numbers can help you calculate their real income over time and when tax season rolls around, you'll want to look at their W-2 form also. On the W-2, box one shows wages, tips and taxable income, but it may be lower than their gross pay if they contributed to pre-retirement accounts or benefits. For a clearer picture of total compensation, look at box five, which is Medicare wages. Now, medicare is 1.45% on your entire income, so that's why we want to look at box five. This usually reflects gross earnings before most deductions.
Speaker 2:If you're in the middle of a divorce, you want to request the W-2 and you absolutely want to compare it against the year-end payroll stub. I always tell clients it's really important to take a look at the year-end payroll stub because that is the only document that is going to break down that person's income between bonus income, general compensation, things like stock option vesting, rsu vesting everything gets glommed together in the W-2 as earned income. The year-end payroll stub shows every item broken down bit by bit, and that's important for you to have as an entry item in child support and spousal support calculations. Now let's wrap this up quickly with four quick power tips. Number one review every pay stub, yours and theirs.
Speaker 2:Payroll errors or sneaky withholdings do happen. I actually had a payroll error happen myself from an employer and I never noticed it. I wouldn't have noticed it if my employer hadn't caught it after I'd already left that employer and they took care of it. Number two keep copies of everything. Save digital or printed versions. You may need them for court mediation or just for future reference.
Speaker 2:Number three don't just look at take-home pay. This is the big one. Get the whole picture. You want to look at gross pay, benefits, bonuses, retirement contributions. For most states retirement contributions are discretionary unless they're mandated by your employer. For example, I know that in my state the school teachers. They're required to put money into their pension. That's a mandatory contribution. If it's not mandatory and it's discretionary, it would get added back in when we take a look at what income is available for spousal support.
Speaker 2:Number four learn the system. Learn to look through the payroll stubs. It's not natural to just know what your payroll stub or your spouse's payroll stubs mean, but you have to ask questions and be curious. This is your money story and you have to take control over being the one to guide that conversation. If you don't understand your payroll stub or your spouse's, remember it's just about numbers and until you have answers to all of the questions, you have to keep asking. So it's about awareness, ownership and actually it's about power, and that's what we're all about here, because you deserve to know exactly what's coming in, what's going out and what's being hidden in plain sight. If this episode opened your eyes, please share it with a friend, especially someone who's navigating money, divorce or a new chapter, and don't forget to follow and leave a review. It helps more people find this show and this message. Until next time.
Speaker 1:Thank you so much for taking time out of your day to listen to Divorce Rich Podcast. If you like this podcast, please follow us on Apple or anywhere that you download podcasts and share this link with any friends or family that you think might benefit from this information.
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