October 17, 2019

How are Auxiliary Benefits Treated When Custodial Parent Files Bankruptcy?

I received the following question from a reader of this blog that raises several interesting questions about auxiliary benefits and the bankruptcy process.

Your blog is the most helpful I have found on the web so far.  God Bless You!

I have just been notified that my ex will be receiving SSDI, so in turn my son qualifies for benefits.  I was told his benefits would be backdated to June 2010 so I should receive a lump sum.  My question is since this is my son’s benefits, do I have to pay taxes on what he receives?  I was going put it in his (my sons bank account for college).  AND I was about to file BK (From the divorce) so could that be seized in the Ch 7 as assets?

Here are my thoughts, which represent general information about Social Security auxiliary benefits and the bankruptcy process:  I believe that the auxiliary benefits payable to your son represents his money, not yours.  You may be the payee for those funds, but the money is not yours.  I would talk to your bank about how to set up the bank account correctly – it should be clear that the account is owned by him with you as the trustee of the account.

As far as taxes go, you need to speak to your tax preparer.  Social Security payments can be taxable based on household income, so the answer to that question will depend on your personal financial situation. [Read more…]