There are many reasons why it’s important to consult with a financial professional or Certified Divorce Financial Analyst when going through a divorce: dividing assets and determining a future budget are just two of the things a CDFA can assist you with.

However, retirement planning is part of the divorce puzzle and Social Security benefits are a big piece. Knowing how Social Security benefits will be affected is crucial to your future finances.

Here’s what you need to know.

The history of Social Security benefits and Divorce

Social Security in the United States refers directly to a lesser known federal Old Age, Survivors and Disability Insurance program or OASDI.

The program was originally rolled out in the 1930s in an attempt to limit what were seen as dangers to the American way of life such as increased life expectancy, poverty, and fatherless children. So, the Social Security Act, signed in 1935, created social insurance programs to provide benefits to retirees, the unemployed, and as well as a lump sum benefit to the family at death.

Many amendments have been made since the original Social Security Act of 1935. Most importantly, Medicare was added in 1965. The Social Security Act of 1965 also recognized for the first time that divorce was becoming a common cause for the end of marriages and added divorcees to the beneficiary list.

When Can I Collect Benefits?

The earliest age at which reduced benefits are payable is 62. The age at which full retirement benefits are available is dependent upon the taxpayers age. An increase of regular retirement age was enacted to reduce the amount of benefits payable.

For those currently over age 70 the normal age was 65. Anyone born after will fall somewhere on increasing scale which climbs incrementally to age 67 depending upon birth date. Anyone born after 1960 must reach age 67 for normal retirement benefits. Delaying receipt of benefits will increase a taxpayer’s benefit until age 70.

As A Divorced Spouse What Do I Get?

Divorced spouses are eligible for benefits equal to one half of the worker’s benefit if they were married for 10 years, have not remarried, and are at least 62 years old. This is called a derivative benefit. A spousal applicant must wait until the worker has reached retirement age, 62, in order to apply for benefits. The worker is not required to have applied for benefits in order for the ex-spouse to apply for spousal benefits. They are not entitled to increases for benefits taken after normal retirement age.

If a worker has died and the ex-spouse has reached full retirement age they can receive 100% of the worker’s benefit as survivor benefits.

What else do I need to know?

If an applicant is between age 62 and their normal retirement age; the application for benefits will be based on the applicant’s earnings record. If one half of an ex-spouse’s benefit is greater than the applicant’s benefit on their own record, the applicant can choose to take whichever is greater. If you wait until your normal retirement age and file for spousal benefits you can continue to accrue benefits and enhancements for delaying your own retirement up until your age 70.

An ex-spouse’s receipt of derivative benefits on the worker’s record does not reduce the worker’s benefits. It is even possible for more than one ex-spouse to collect on the worker’s derivative benefits. This could lead to as much as 500% of the original benefit being claimed by the five ex-spouses.

 

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

 

 

Lou Falvo is a Certified Divorce Financial Analyst® and CIMA® (Certified Investment Management Analyst) who assists clients by evaluating the tax and financial aspects of divorce. Lou is dedicated to reducing the burden of each client by thoroughly examining the financial elements of the client’s divorce, with a keen focus on what is in his or her best interests. Contact Lou to find out how he can assist you with your divorce proceedings at  lfalvo@crossroadsdivorce.com or (585) 542-2382.