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How Will Early Retirement Affect My Social Security Benefits in a Divorce?

Social Security operates under the philosophy that the long-term partner and helpmate of a member of the workforce deserves a personal benefit for their contributions and support over the years. This is portrayed in the spousal benefit available to long-term married couples, allowing the lesser-earning spouse to draw Social Security based on their spouse’s wage history. It is also mirrored in something called the divorced spousal benefit.

That’s right—even if you are divorced, a long-term marriage can still make you eligible for Social Security benefits based on the income of the higher-earning spouse. Doing so does not affect the amount your ex will receive from their benefits; they will not even be notified that you are collecting the benefit. And while the rules of Social Security date to an era of single-income households where the husband worked and the woman stayed home to raise the children, the benefits are gender-neutral; a former husband could just as equally collect the divorced spousal benefit based on his ex-wife’s wage history if she was the primary earner during their marriage and the other requirements are met.

Although federal law prohibits judges from considering a person’s Social Security when it comes to the division of assets in a divorce case, this doesn’t mean these benefits should not be discussed with your attorney. Social Security benefits can ensure a consistent income stream for divorcees approaching retirement and are much more complex yet customizable than many people realize.

Requirements

If you and your former spouse were married for 10 years or more, you can be entitled to one-half of their full Social Security retirement benefits if:

  • You remain unmarried. If you start collecting divorced spousal benefits but later re-marry, you generally lose eligibility for the divorcee benefit.
  • Your former spouse is eligible for Social Security retirement or disability benefits. A person becomes eligible for Social Security by earning a minimum amount of income for at least 10 years of work in jobs that took the Social Security (FICA) tax from their paycheck. This is an important point; if your former spouse was, for example, a police officer who made contributions to the state employee’s retirement plan rather than Social Security, he or she would not be eligible for Social Security benefits, nor would you.
    • If your former spouse qualifies for Social Security benefits but has not yet applied for them, you may still start receiving divorced spousal benefits if you have been divorced for at least two (2) years.
  • You are at least 62 years of age. The age of your spouse does not matter.
  • The Social Security benefit based on your own wages is less than the benefit you would receive based on your ex’s wages.

If you qualify for the divorced spousal benefit but still work (i.e., your former spouse’s retirement benefit still exceeds your own), the “earning limit” will apply to your current income. The Social Security Administration calculates a new threshold maximum amount of income each year; for every $2 your current income exceeds this amount, your divorced spousal benefit will be reduced by $1. The earning limit does not apply to investment income, but rather only to job-related income. The 2016 annual earning limit threshold is $15,720, or $1,310 per month.

Early Retirement vs. Delayed Retirement

For individuals born between the years 1943 and 1954, the full retirement age (FRA) is age 66. If you were born in another year, you can find your FRA by visiting the Social Security website.

If you wait until you have reached your full retirement age to begin collecting Social Security, this can significantly increase the amount of benefits you receive. If you are eligible for two types of Social Security benefits—such as one based upon your own wage history and one based on that of your former spouse—you can elect which type you want to receive once you reach FRA.

For example, say that your FRA is 66 and you wait until then to retire. The Social Security retirement benefit you qualify for based upon your own wage history is $1,000 per month, while your former spouse’s FRA amount is $2,000.

Since the divorced spousal benefit is half of your former spouse’s FRA amount, you could be tempted to assume that it doesn’t matter which benefit you opt to collect because your benefit amount is $1,000 either way. However, this is not the case and could be a costly mistake if you elect to claim the benefit based on your own wage history. For each year past your FRA that you put off collecting your own benefit, the Social Security Administration pays you a delayed retirement credit equal to eight (8) percent of your overall benefit. This means that you could opt to collect the divorced spousal benefit, postpone your own retirement, and increase the amount you’ll be receiving from your own benefits once you opt to retire.

Of course, the scenario above is just one potential situation in the world of Social Security. There are many factors that can impact which choice would be right for your particular state of affairs. Social Security has many rules and requirements, and each person’s financial situation differs so dramatically, it is impossible to give a concise overview of every possible scenario that could impact your eligibility or the advisability of your collecting the divorced spousal benefit.

If you are facing divorce, or are divorced and want to see if you are eligible for the divorced spousal benefit, contact Arnold & Smith, PLLC today. We are a civil and criminal defense firm in Charlotte that handles a wide variety of family law issues for our clients, from adoption to child custody and divorce. We also handle estate law matters. Contact our offices today for a consultation with one of our attorneys.