Even after finalizing a divorce, the planning is not over. It is time for Social Security benefits to play their role. The "who is entitled to what Social Security benefit and when" can add yet another layer to the complexity of a divorce in the years to come.
To walk through these layers, let's look at a hypothetical divorce scenario. After 20 years of marriage, Doug and Sarah decide that they want different things during retirement and that a divorce is their best course of action. Doug and Sarah are both 62 years old. They both worked during their marriage and contributed to Social Security. They're also each entitled to their own respective benefit. Doug’s benefit at his full retirement age is $3,000/month, and Sarah’s is $1,000/month.
The lower-wage-earning spouse (in this case, Sarah) is entitled to half of the ex-spouse’s (Doug's) Social Security benefit if:
- Doug is eligible to receive Social Security benefits
- The marriage lasted ten years or longer, and it ended in divorce
- Sarah is at least 62 years-old
- Sarah has not remarried
If Sarah does remarry, she is no longer eligible to receive benefits under Doug’s Social Security. Instead, she can receive her benefit of $1,000/month, or half of her new husband’s benefit, whichever is higher.
In Doug and Sarah’s case, they meet the criteria. Sarah’s own Social Security benefit ($1,000/month) is less than half of Doug’s benefit. Therefore, she will be eligible for $1,500 a month based on half of Doug’s Social Security benefit ($3,000/month divided by two = $1,500/month). Note: Doug’s benefit will not be reduced. He will not be affected by this.
We all know life is complicated, and Doug and Sarah’s situation is not messy enough to be a real-life situation. Let’s complicate things a bit more.
Sarah marries Bob. Bob has Social Security benefits of $2,500/month. She is now entitled to half of Bob’s benefit and not half of Doug’s. Sarah can collect $1,250/month ($2,500/month divided by two) instead of the original $1,500/month. If Bob’s benefits were $1,200/month, Sarah would take her benefit of $1,000/month because it is more than half of Bob's benefit ($1,200/month divided by two = $600/month).
Did You Know: This reduction of benefits is one of the main reasons divorced seniors in new relationships do not get married.
Doug has decided to delay taking his benefit or has decided not to retire yet. If Sarah is at least 62 years-old AND they have been divorced for at least two years, she will be able to receive benefits based on Doug’s earnings. This is regardless of whether or not Doug has applied for benefits or has retired. The critical thing to note here is that the divorce must be finalized for at least two years.
Sarah would like to start taking Doug’s benefit before her full retirement age. Her benefit will be reduced by up to 25%, and she will not be entitled to the full benefit upon reaching full retirement age.
Let's complicate things even more. Doug marries Lisa. They are married for ten years, and they too decide to divorce. Sarah and Lisa are now both eligible to receive half of Doug’s benefit. As long as a marriage lasts for ten years or longer, all ex-spouses qualify for half of Doug’s benefit. Doug’s benefit will remain unaffected by how many ex-spouses collect. There is no limit on the number of ex-spouses who can collect.
Doug passes away after his divorce from Lisa. Sarah and Lisa will both qualify for 100% of Doug’s benefit. So, Sarah and Lisa will each receive $3,000/month.
These are just some of the “if this, then that” situations. More layers are added if one spouse remarries, and then the current spouse passes away either pre or post-divorce; if one spouse is caring for children; if there is a significant age gap; if either spouse is disabled; and it keeps going from there. These complexities are another reason why it is important to have someone help navigate the troubled waters of divorce, before, during, and after.
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