Divorce impacts Social Security in a variety of ways. Many spouses do not know the rules and either assume benefits for which they do not qualify or fail to realize they qualify for certain benefits. So, we thought we would take a moment and present some key basics and how that influences financial issues at divorce.
Divorced spouses do qualify for benefits through the benefits of former spouses, but only if certain conditions are met. First, the divorced spouse must have been married for at least ten years. Second, the divorced spouse must still be unmarried. If the divorced spouse satisfies all these conditions, the divorced spouse would qualify for 50% of the benefit the former spouse receives, though these benefits could be offset if the receiving spouse has greater benefits through his or her own Social Security income.
What if the divorced spouse had been married more than once? Under the law, that divorced spouse can qualify for the benefits of each previous spouse so long as each marriage lasted ten years and the divorced spouse is currently unmarried.
Social Security pays benefits at different levels based upon when an individual begins to claim benefits. The earliest an individual may claim retirement benefits is at age 62. However, these “early” benefits are much lower than the benefits at the “regular” retirement age (66) and “full” retirement (70). If a spouse can afford to wait until 66 or 70 to begin claiming benefits, the return on the wait will be significant – anywhere from 33% to 50% higher.
A divorced spouse may also claim a restricted benefit on his or her benefits so that from age 62 to 70 that spouse claims on his or her benefits and at 70 claims the benefits of the former spouse.
Given these retirement income stream possibilities, a spouse within reach of retirement age (say within five to eight years) at the time of divorce would want to consider different financial arrangements to account for receipt of these benefits. For example, the amount of maintenance parties would agree to in a settlement could be influenced by these strategic choices (it may make more sense from a tax standpoint to pay some maintenance for a certain time period knowing when benefits kick in rather than pay a lower amount for an indefinite time).
In addition to retirement benefits, divorced spouses also can claim survivor benefits upon the death of the former spouse. These amounts vary on certain criteria but should be remembered as a potential future asset.
As you can see, Social Security provides guaranteed income streams to former spouses under certain conditions, and those income streams vary in amount based upon strategic choices for when to retire. These lifetime sources should be considered in financial planning after divorce but even more importantly in the negotiations relative to the divorce itself, as the presence of these funds could heavily influence property and maintenance settlements.
If you have questions about Social Security benefits and divorce, contact us – we can help.