Social Security Benefits After Divorce

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Hello and welcome to Retired-ish. I'm your host, Cameron Valadez. Today, I'm going to help you navigate life after divorce and talk about your possible Social Security benefit options after a split. Now this is a very popular topic these days. As sad as it is, it seems to be getting more common each year.
This is typically the type of concern that rises top of mind for those in their fifties and sixties who end up splitting later in life. This is so common nowadays that there is actually a term for it called gray divorce. And since Social Security will likely be a key source of income during retirement for both spouses when a marriage ends after 30-plus years, this is something you'll want to understand pretty well. The most common demographic this topic pertains to primarily includes stay-at-home mothers who have put their careers on hold to raise children and support their husbands in their careers, or vice versa. Now, I know this isn't always the case, but it's just what I have commonly seen in practice. I know there are a lot of stay-at-home dads out there, too, nowadays, taking on those responsibilities as well.

Generally, these retired and pre-retired wives and mothers have not been involved in the family's day-to-day finances. Facing a divorce can be intensely unsettling because you are unclear at first on how the future will look, especially financially. However, as you will soon learn, the potential Social Security benefits you can expect to receive can be fairly clear, and you can begin to plan for your own cash flow in retirement while you're on your own. It is all too common for you to have questions like what about all those years I stayed home, and my spouse got to go to work and paid into Social Security?

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Will I be able to receive anything? Or is my ex going to take away from my Social Security benefits? Or what if I eventually want to get remarried? Does that affect anything? These are some of the questions I hope to give you answers to so that you can plan accordingly if you find yourself in a situation where you have to plan an independent retirement post-divorce.

That being said, Social Security does provide benefits for divorced spouses as well as survivors. However, there are, of course, some guidelines and requirements you need to be aware of. In the case of divorced spouses, the maximum benefit that you may be eligible to receive is 50% of your former spouse's full retirement age benefit. But if taken as early as possible, it can be as low as around 32.5% of their full retirement age benefit. In general, their full retirement age benefit is based on their earnings record and date of birth.

This amount is also shown on any Social Security statements that they may be receiving. Now, in order for you to even be eligible for an ex-spousal benefit, I'll call it, there are three main requirements to be eligible for those benefits. The first is that you must have been married to your former spouse for at least ten years before the divorce. Now, these are consecutive years, so ten years from the date of marriage to the date the marriage was final. This rule holds true even if you were married and, during the marriage, you had been collecting a spousal benefit,
let's say. If the marriage ends and you are not married for at least ten years, you will lose that benefit. In cases like this, there should be some carefully crafted negotiating during the dissolution process. Now, the second requirement is that you must currently be unmarried. Simple as that. The interesting thing about this rule is that if you remarried and, let's say, you got divorced a second time, or maybe your second spouse passed away, you can claim benefits based on your first or second spouse's benefits as long as the particular marriage lasted at least ten years.

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In this case, it would be either or not both. You would take whichever is greater. Now, the third requirement is that you must be at least age 62 to begin collecting an ex-spousal benefit. Now, this is a little bit different than collecting a benefit based on a deceased spouse, for example, in that you can't qualify for an ex-spousal benefit any earlier than 62, even if you're taking care of the ex-spouse's child, let's say. You have to be at least age 62.

Another very important thing to know is that you cannot collect a benefit based on your ex-spouse's record as well as your own at the same time. If eligible, you will either collect your own retirement benefit, if you have one, or the ex-spousal benefit again, whichever is larger. This would only be relevant if both you and your ex-spouse worked and paid into Social Security. Okay, so let's go over an easy example and put all of this together.

Randy's former spouse, Kathy, may qualify for ex-spousal benefits based on Randy's work record. Kathy is 63 years old. In this case, she's retired and currently unmarried. She has been married to Randy or was married to Randy for 14 years. When Kathy applies for her own Social Security, the Social Security Administration will see if she can draw more on Randy's record than on her own record and will pay her the greater of the two. Another common question I get asked when working with divorcees is, can I start collecting the ex-spousal benefit if my ex is not taking Social Security yet?

00:06:07
And the answer is it depends. The rules are as follows if you have been divorced for at least two years, you do not have to wait for your ex to start their own Social Security benefits. However, they must be at least age 62 or disabled, defined by the Social Security Administration, which basically means that they need to be eligible for Social Security to begin with. And yes, you still need to meet the three main requirements I just discussed. Okay, so what if you've been divorced for less than two years?

If the divorce was less than two years ago, your former spouse does, in fact, need to apply for Social Security in order for you to be able to receive an ex-spousal benefit. Let's look at another example. Piggybacking off the last. Kathy is age 63 and retired. She divorced from her husband, Randy, three years ago. Randy is currently age 62 but still working and not collecting Social Security. Although Randy has not started collecting yet, Kathy gets Social Security based on Randy's work record, even if it's, let's say, six years before he actually retires. This is because they have been divorced for at least two years, and Randy is at least age 62.
Now, before you have a conversation with your married friends at your next gathering and get confused, you should note that these rules are very different than those for currently married spouses. For a married spouse to be eligible to take a spousal benefit based on their spouse's earnings record, the spouse with the earnings record must already be collecting Social Security benefits.

In the case of ex-spousal benefits, this is not necessarily the case. Now, actually, before 1985, it was the case the worker did have to already apply to get that ex-spousal benefit. So why did they change it? Well, for example, when Randy went to collect his benefit, let's say in 1983, he learned that his ex, Kathy, could draw her benefit based on his record once he applied. They had a pretty nasty divorce, and Randy wasn't hurting for income at that time, so he decided not to take his benefits for as long as he could, basically holding Kathy hostage financially.

00:08:23
Sound like a problem? Yeah, congress thought so, too. I want to circle back really quick regarding when you can begin collecting because just because you can doesn't mean you should. If you recall, the maximum benefit you could possibly receive is 50% of your ex's full retirement age benefit. This is if you wait until your own full retirement age to start collecting it.

By the way, I will include a resource in the show notes for today's episode where you can look up your own full retirement age if you're unsure what that is. Now, if you start collecting the benefit any earlier, so all the way back to age 62, you will receive a reduced amount permanently. If you take it right at 62, you will only get the rough 32.5% of the total benefit. In addition, earnings limitations set forth by Social Security will apply if you are collecting prior to your full retirement age and still working. The annual earnings test applies to wages just like a W2 from a job or self-employment, income, or both.

In general, if you are working while collecting benefits, Social Security will reduce the benefits paid to you, depending on how much you make up until you have reached your own full retirement age. So here's how that works. If you are under full retirement age for the entire year so, let's say you're collecting at age 63 or 64 and you're working. They deduct $1 from your benefit payments for every $2 that you earn above the annual limit. Now, for reference, for 2023, that limit is $21,240.

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Now, in the year you reach full retirement age, they change it, and they will deduct $1 in benefits for every $3 you earn above that year's limit. So again, for reference, in 2023, this limit is based on your earnings is $56,520. More information on this will be included in the episode show notes, so be sure to check those out after the show. When you decide, collecting will ultimately depend on your individual financial situation. As always.

Are you really struggling for income? Are you working? Do you have any other savings or maybe assets that you are to receive from the divorce that maybe you can live on those for a while instead of collecting? How is your health? All of these will come into play when trying to decide whether or not you should start collecting benefits. You should only make a decision after you've gone through some kind of comprehensive financial planning that takes everything into consideration.

And by the way, you cannot start with your ex-spouse's Social Security benefit and switch to your own possible retirement benefit later unless you were born on or before January 1, 1954. In addition, taking a benefit based on your ex-spouse's record will not reduce what they can receive in any way. So, for those of you wanting revenge coming out of nasty splits, sorry, nothing for you here.

Okay, so I want to take some time on this next topic because this is a very, very common question. It has to do with remarriage. For those of you that think you want to start that all over again, there are some more things that you're going to need to know. If your former spouse remarries, it does not affect your divorce benefits or your ex-spousal benefits. If you remarry, you usually forfeit the benefit from that first marriage. However, there are two exceptions. The first exception is that if the second marriage ends through divorce, annulment, or death, you may become re-entitled to benefits based off the first marriage.
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In the case of divorce, as long as that first marriage lasted at least ten years, of course. Remember those first three requirements. If the first marriage ended due to the death of your spouse, the marriage must have been in existence for nine months before the death of that spouse. The second exception is that if you remarry after age 60 if you do that, you will forfeit the ex-spousal benefit from the first spouse, but you will retain the survivor benefit off of them should they pass. If you remarry before age 60, you forfeit both the ex-spousal benefit from that spouse and the survivor benefit off that first marriage. Hey, even if your first spouse remarried before they passed, you and the other ex could both be collecting off your ex's benefit. Pretty crazy, huh?

Okay, so which benefit would you receive if you are divorced but remarried after age 60? You would receive the greater of the spousal or survivor benefit of your current spouse, your own retirement benefit, or the survivor benefit from the first spouse. If you remarry, remember you are no longer entitled to that ex-spousal benefit based on your first spouse's record, assuming they are still alive. That was one of our original requirements.

Okay, so what's the takeaway of all this planning? Well, if you are the spouse with the lesser work history, see if Social Security ex-spousal benefits can be claimed if you were married for at least ten years. If you do not qualify, so let's say you were only married for eight years with the help of an attorney, you may want to negotiate for more ongoing income from untaxed income sources such as alimony and spousal support. If you are the spouse with a more extensive work history, calculate the amount of any Social Security ex-spousal benefits that the other spouse stands to receive, and with the help of an attorney, you can possibly use this information to seek smaller payments of alimony and spousal support, which are nondeductible for tax purposes.

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So after 2018, the payments for alimony and spousal support, you can't deduct them, and the person receiving them receives them untaxed.

That's all for today's show. I know it was a quick one, but I know it will be very powerful information for you to know when navigating life post-divorce. I hope this helps you or someone you know and love going through a rather difficult time on their journey. If you have any more questions that maybe I didn't answer on the show, feel free to ask me a question on Retiredishpodcast.com.

You can go to the Ask a Question page at the top. I will also include a link to that in the show notes for today's episode and Ask a Question. I will do my best to answer it on a future episode. As always, thank you for tuning in and following along. See you next time on Retired-ish.

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