By Michelle Buonincontri
As baby boomers continue to have higher and increasing divorce rates than other age groups, divorce later in life can bring increased retirement risks – there is less time (a shorter investment horizon) and opportunity to recover from losses. This creates more vulnerability to market fluctuations and retired spouses may also be confronted with unplanned liquidity needs that can no longer be met with wages or a salary. Social Security benefits can be an important part of solving the retirement income puzzle if you experience a late-life divorce.
Retirement and Social Security on their own are complex financial planning topics. Then, layer in divorce and things become even more complicated and confusing. Let’s look at some of the myths around Social Security so better informed decisions can be made when divorce or remarriage coincide with Social Security claiming.
Common Myths about Divorce and Social Security Claiming
Below are some of the misconceptions around Social Security benefits that may influence decisions around divorce or your retirement plan:
· More than one spouse/ex-spouse can’t claim a Social Security benefit on a wage earner
· He/she has remarried, so an ex-spouse can’t claim a Social Security benefit on their previous spouse’s earning record
· If she/he claims a benefit on my work record I will receive a reduced benefit
· My ex-spouse will find out if I claim a Social Security benefit on his/her earning record
· If we divorce, I receive all of her/his Social Security benefit
· If we divorce, I receive my own Social Security benefit as well as ½ of his/her benefit
· I can’t claim Social Security benefit based on my former spouse’s earning record because it was disallowed in my divorce settlement
· I can’t claim a Social Security benefit based on my ex-spouses earning record and let mine grow (See the tip in Claiming on an Ex-Spouse's Record below.)
The wording can be misleading and there are some half-truths here, so let’s explore some of this further in a general sense.
Basic Facts about Divorce and Social Security
When we’re talking about Social Security, marriage and divorce, 10 is the magic number of years married for someone to be eligible for Social Security or survivor benefits, based on the earning record of an ex-spouse. This is explained further in the “Claiming Social Security” section below.
From what I’ve read, the Social Security program has its own rules, just like the IRS, and those rules can’t be overwritten in a divorce settlement by state divorce law. So if your previous divorce settlement says you can’t collect Social Security benefits on your ex-spouse’s earning record, or your soon-to-be ex-spouse wants that added to your settlement agreement, contact the Social Security Administration for clarification at 800-772-1213 and peace of mind.
Additionally, both a current spouse and ex-spouse, can have a benefit based on the same wage-earners record. Consequently, even if your ex-spouse has remarried, you may still be eligible for a benefit, and the benefit is not divided among multiple spouses/ex-spouses.
For example: In the case of television personality Johnny Carson, his 1st, 3rd, and 4th wives all collected Social Security benefits based on his earnings record. Unfortunately, his second wife did not because they weren't married for 10 years.
TIP: There are two kinds of benefits – Social Security benefits and survivors benefits – and the rules around remarriage are different.
Claiming on an Ex-Spouse's Record
In general, there are five rules:
· You had to be married for 10 consecutive years or longer
· You have reached age 62
· Your ex-spouse is already claiming benefits
You have been divorced for two years or longer and your ex-spouse is eligible for social security retirement or disability benefits (even if he/she is not yet collecting)
· The benefit that you are entitled to receive based on your own work is less than the benefit you would receive based on your ex-spouse’s work record
· The spouse claiming a benefit on the ex-spouse’s earning record has not remarried. (This may vary if the ex-spouse has passed away and we are talking about a “survivor” benefit, see the Social Security website for more information this.)
· Spousal benefit will be ½ of your living ex-spouse’s benefit (even if you never worked) or your benefit based on your earning record – whichever is higher
· Survivor or widow(er) benefit – If your ex-spouse has passed away and you are eligible for a divorced widow(er) survivor benefit, you may receive the higher of 100% of your ex-spouse’s benefit at your full retirement age or your benefit based on your earning record
Whenever you are eligible and apply for multiple benefits (as in the cases above) you won’t get the cumulative amount of the combined benefits (his/hers & yours), instead you will get whichever one pays the highest amount.
TIP: Divorced retirees who are age 62 or older by January 1, 2016 and have a full retirement age (FRA) of 66, or if you were born before January 2, 1954 and have already reached your FRA, you may choose to receive the divorced spousal benefit and delay receiving your own retirement benefit until a later date by filing a “restricted application” for just your ex-spouse’s benefit from age 66 to 70. This allows your own retirement benefit (based on your record) to continue to grow at 8% a year – that’s a 32% benefit increase if you wait until age 70 due to the delayed retirement credits. Then if your earned benefit is higher, you could switch to your own individual benefit at age 70. This strategy however is no longer available for those born AFTER 1/1/1954.
Remarrying after Divorce
This is where it can get even trickier, depending on whether you remarried before or after age 60 and if you were receiving a widow or divorced spousal benefit before remarriage. Are you still married to someone now? Are both spouse and ex-spouse living or is one deceased?
If you remarried before age 60 and are still married, you are not eligible to claim benefits on your ex-spouse’s record (even as a survivor widow(er) benefit). If this marriage ends, you may be re-eligible for benefits on your ex-spouse’s earning record.
However, if you remarry after age 60 you may be able to use a Social Security claiming strategy based on an ex-spouse if it’s favorable to you under certain circumstances.
For example: If you were previously divorced, met the other eligibility requirements, the previous spouse passed away and you now remarry after age 60, you may be entitled to the higher of a divorced widow(er) survivor benefit, a spousal benefit (based on your new spouse’s higher earnings record), or a benefit based on your earning record.
TIP: Today, with the increase in divorce, there’s an increase in multiple remarriages. So, if you have more than one marriage that has lasted 10 years or more and ended in a divorce the earning records of both ex-spouses may need to be evaluated when deciding on a claiming strategy.
Have no worries, the Social Security Administration (SSA) will NOT notify your ex-spouse that you are receiving benefits based on their record, but you will need to know his/her Social Security number and have a copy of the finalized Divorce Decree. The SSA will look at you as single, married, divorced, or widowed and you may seem to fall into several of these categories which can be very confusing. Remember, you can’t be an ex-wife/husband of a living ex-spouse and a current wife/husband of a living spouse when talking about a spousal benefit. In this case you are a married spouse and can’t choose the better spousal benefits across both the ex-spouse and current spouse while they are both alive.
So, although you may apply for social security online via an application form or your My Social Security account, or by calling 800-772-1213, it may be most prudent to speak with a financial professional specializing in social security claiming strategies first and then make an appointment to go into your local Social Security office.
For a more detailed look at rules and scenarios see “Social Security Rules and Strategies for Divorcee Spousal Benefits”. It is also my understanding that the system’s rules and benefits are no different for same-sex marriages and divorces.
The big takeaways:
· If you were married more than 10 years, there may be some Social Security benefits available that you were not aware of, regardless of what your divorce decree says
· If you are currently married and close to 10 years in that marriage, it may make sense for both of you to consider
o waiting until after the 10 years has passed before filing for a divorce
o or filing for a legal separation in the interim, until the 10 year rule is met so that the less-monied spouse can be protected financially under these social security benefits after the divorce. This does NOT impact the benefits received by the higher earning spouse
· Talk with a professionals before making a final claiming decisions
This is not meant to be an exhaustive discussion on the topic, tax, financial planning or law advice, but rather items for consideration so that you may make better decisions with your team of professionals.
About the author: Michelle Buonincontri
Michelle Buonincontri, CFP®, CDFA®, is a divorce financial strategist, personal finance coach and mediator. She is the founder of Being Mindful in Divorce and New Direction Financial Strategies LLC, as well as an avid volunteer at Savvy Ladies in NY and Fresh Start Women's Foundation in Phoenix, and she works closely with the AZ National Guard. You can email her at firstname.lastname@example.org.