If you have an ex-spouse, you really need to understand the rules on Social Security and divorce.
Especially if you’re a woman!
Why? Because Social Security is much more important for most women than it is for men. That’s not just what I think, or based solely on observations after more than a decade of financial planning, that’s what the Social Security Administration says.
In their publication “Social Security is Important to Women,” they state that in 2014 the average male’s Social Security benefit was $16,398. For a female, the average is only $12,520. This is primarily due to women not having the work history or earnings that their male counterparts do.
In addition to having a lower SS benefit, females depend on their benefits to meet a great percentage of their living expenses. Among single Social Security recipients, men rely on Social Security for 35.9% of their total income. Women count on Social Security for more than half!
These numbers clearly illustrate that women need to understand the rules on Social Security for ex-spouses.
Divorce is difficult. Though I’ve never personally been through it, I’ve watched as dozens of my clients and friends have gone through the process. From my side of the desk, I often see the financial impact of a divorce. I’ve yet to see a single divorce where either spouse emerged with a higher net worth. Everything changes. So before you sit down with your financial planner to rethink out your retirement income strategy, here’s what you need to know about Social Security and divorce.
The Rules Pertaining to Divorced Women and Social Security
There are two main rules you need to know before you start:
- Your marriage must have lasted at least 10 years.
- You must be 62 or older (or 60 if your ex-spouse is deceased).
It’s also important to understand that:
- There are different rules for ex-spouses that are still living and ex-spouses that have passed away.
- Your benefits will be based upon your ex-spouse’s benefits at full retirement age, and will not be based upon any increased benefits that your ex-spouse receives for delaying the receipt of benefits.
- There is a steep penalty for starting benefits before your full retirement age, and, for spousal benefits, there is no additional benefit to waiting beyond your full retirement age.
If Your Ex-Spouse is Still Alive
If you’ve met the length of marriage rules, and your ex-spouse is still living, you are eligible for the greater of:
- your own benefit, or
- up to 1/2 of your ex-spouse’s full retirement age benefit.
Here’s an example:
Your ex-spouse has a full retirement age benefit amount of $2,000. Based on that alone, you could expect to receive $1,000 spousal benefit at your full retirement age. However, the actual amount you receive may be less, based upon the age that you file for benefits. Depending on how old you are when you file, the spousal benefit amount will range between 32.5% and 50% of the higher-earning spouse’s full retirement benefit.
In the chart below, we’ll assume that your full retirement age is 67 (the full retirement age for those born in 1960 or later). We’ll continue the assumption that your ex-spouse’s full retirement age benefit is $2,000 per month.
You probably noticed the penalty for filing early. You may have also noticed that the spousal benefit does not increase beyond your full retirement age. So, if a spousal benefit is highest benefit that you are entitled to, there is usually not a good reason to delay filing beyond your personal full retirement age.
If you are divorced, and your ex-spouse has not yet filed for benefits, you must have been divorced for at least two years before you can claim benefits based upon your ex-spouse’s history.
If Your Ex-Spouse is Deceased
I think that the survivor benefit available to spouses (and sometimes ex-spouses) is one of the most generous benefits from Social Security. As long as the length of marriage rules are met, the surviving spouse will receive the highest of either his/her own benefit or the benefit of the deceased ex-spouse.
You can receive a survivor benefit at 60.
Once again, there is significant incentive to wait until full retirement age, and no value in delaying benefits past full retirement.
If You’ve Been Married More Than Once
What if you’ve been married more than once?
If you are not currently married, and you’ve met the length of marriage requirements for each period of marriage, you can pick and choose from the highest benefit available. If circumstances change, if an ex-spouse dies for example, you could switch from a spousal benefit on one spouse to a survivor benefit on another.
If you have remarried, and are currently married, then you are not eligible to claim spousal benefits from a prior marriage.
What About Medicare?
If you don’t qualify for benefits on your own work history, you will be able to get Medicare benefits if your ex-spouse qualifies for Medicare (paid Medicare tax for 40 credits) and you were married for 10 years.
The rules for Social Security benefits for former spouses are pretty generous and the program can provide much-needed income during retirement years. Understanding the rules is key to receiving the maximum benefit to which you are entitled.
There’s a tremendous amount riding on you getting good answers to your Social Security questions. The amount of benefits you will receive can often hinge on how much you know! So don’t let this complicated system get the best of you.