Divorce & Social Security – Understanding Your Benefit Options

One of the more important and misunderstood benefits available through Social Security is the spousal retirement benefit. The original purpose of the spousal benefit was to provide a retirement income for stay at home spouses who had limited work history because they did not work or spent several years out of the workforce while raising a family.

The spousal benefit generally works as follows:

1.     The spouse must be at least age 62 and the working spouse must have started his/her own benefits.

2.     The spouse is entitled to the larger of his/her own benefit or 50% of the working spouse’s benefit.

Example: Ron & Rita Retiree are married. Ron’s benefit is $2,000 per month while Rita’s is $800. Since 50% of Ron’s ($1,000) is higher than Rita’s own benefit, she will receive a spousal benefit of $1,000.

3.     If the spouse turns on spousal benefits before full retirement age, there is a permanent reduction of up to 30% depending on how early benefits are turned on. For example, if Rita’s full retirement age (or FRA) is 66 but Rita takes her spousal benefit at the earliest age of 62, then there is a 30% reduction in benefits. So instead of receiving the $1,000 benefit at age 66, she would receive $700 at 62.

4.     If the working spouse dies, then the spousal benefit becomes a widow or widower benefit. The widow(er) benefit is equal to 100% of the deceased spouse’s benefit if that is higher than the spouse’s own benefit. If the widow or widower takes benefits prior to his or her full retirement age, it is reduced just like the early spousal benefit.

Divorce & Spousal Benefits

A divorced spouse may be entitled to a spousal or widow(er) benefit based on their ex-spouse’s earnings if they meet certain requirements:

·       The spouse is age 62 or older

·       The spouse is not married

·       The spouse was married to his/her ex-spouse for at least 10 years

·       If the spouse has been divorced for at least two years, the ex-spouse does not have to have filed for his/her benefit

Spousal or widow(er) benefits for a divorced spouse work the same as for a married spouse. The spouse will receive the higher of either his/her own benefit or 50% of the divorced spouse’s. The reduction rules for early benefits work the same, however a widow(er) can start benefits as early as age 60 instead of 62, but with a larger reduction.

Something else to keep in mind with a divorced spouse benefit - if the spouse remarries, spousal benefits on the ex-spouse’s earnings would stop. Benefits would then be based on the spouse’s own earnings or as a spousal benefit from his/her new spouse. This could cause a significant decrease in retirement benefits and this may need to be considered when deciding to remarry.

The rules around taking Social Security are very complex for individuals, but especially so when determining spousal benefits. People who are divorced are often unaware that they can take advantage of spousal benefits based on their ex-spouse’s earnings as long as they meet the requirements for a divorced spouse. For spouses who didn’t earn much or spent most of their working career staying at home raising a family, the divorced spouse benefit may provide an opportunity for increased retirement income and should be evaluated to see if makes sense to use.

If you would like a complimentary Social Security analysis, please contact us.