Your Social Security benefits can be difficult to navigate in “normal” circumstances, so when it comes to any outside exception, they can be especially confusing.
With that said, as we help clients with their retirement planning in the Carolinas here at Global View, we get a lot of questions about Social Security and divorce. There are somewhat obscure Social Security rules regarding spousal benefits, based on your spouse’s or ex-spouse’s earnings record. Complicating the picture is a 2015 change that created separate rules for people born on or after January 2, 1954.
To clear up some of the confusion, we recently published this new guide: Navigating Social Security. As one of two Registered Social Security Analysts with the National Association of Registered Social Security Analysts at Global View, we’ve also been publishing regular articles to our blog about Social Security and how these benefits affect your overall retirement planning. You can read our latest posts here.
To continue these efforts, this article breaks down some of the confusion surrounding your Social Security benefits and divorce – and what it means to your overall retirement planning, in the Carolinas and beyond.
If you have a question that is not addressed here or would like to discuss your specific situation in more detail, contact me directly. No two retirements are exactly the same.
Basic Rules
A few basic rules apply to Social Security benefits for divorced spouses:
- If you are divorced, you may be able to collect Social Security benefits based on your ex-spouse’s earnings.
- You must have been married at least 10 years before divorce if you want to collect spousal benefits.
- You must be at least 62 years old and single to collect spousal benefits from your ex-spouse, whether or not the ex-spouse has remarried.
- Your claim on your ex-spouse’s earnings record terminates if you remarry. However, if you divorce your new spouse to whom you had been married for at least 10 years, you can pick which ex-spouse to base your spousal benefits upon. If only the first marriage lasted 10 years, you can still collect spousal benefits based upon your first spouse’s earnings record.
- If your ex-spouse dies, you may be eligible for survivor benefits.
The Two-Year Rule
There is a special rule that favors divorcees over married spouses. This is the Two-Year Rule, which states that if you’ve been divorced for at least two continuous years, you can claim spousal benefits even if your ex-spouse has not yet claimed benefits. In contrast, if you were still married, you wouldn’t be able to claim spousal benefits until your spouse did.
Restricted Application
Divorcees born on or before January 1, 1954, can file a restricted application for spousal benefits once they reach age 66 and suspend their personal benefits until later. By doing so, your personal benefit grows annually by 8 percent until you claim it, or you reach age 70, whichever comes first. You can switch from your spousal benefit to your personal benefit any time.
A new rule removes the restricted application option for divorcees born on or after January 2, 1954. Instead, when you file for benefits, you automatically receive the greater of spousal benefits and your own. You can no longer switch from one to the other.
Earnings Limits for Divorcees
If you continue to work while receiving spousal benefits based upon your ex-spouse’s work records, you are subject to the same earnings limits as your ex-spouse. Specifically, Social Security will tax your benefits if you, as a couple, earn threshold amounts of income. In 2021, 50 percent of your Social Security benefits is subject to taxation if you earned between $25,000 and $34,000, and 85 percent thereafter. These limits apply to your combined income, even though you are divorced, according to the following computation:
Combined income = Your adjusted gross income + Nontaxable interest + 50 percent of your Social Security benefits
Normally, these taxes are withheld from your Social Security benefits until you reach your full retirement age. You can instead choose to pay the tax on your Social Security benefits by making quarterly estimated tax payments. You would eventually get back the taxed amount, but it might take up to 15 years once you reach your full retirement age.
Keep in mind that the benefits you receive do not impact your ex-spouse’s benefits or those of your ex-spouse’s current spouse, if any.
For more on taxes and Social Security benefits, read our recent blog post: Retirement Planning in the Carolinas: 5 Myths About Social Security.
Worthless Clause
If you are getting divorced, you may sign a divorce decree containing language renouncing your right to spousal benefits. But if you were married for 10 years, this kind of clause loses its meaning and cannot be enforced.
Survivor Benefits for Divorcees
Divorcees can collect survivor benefits when their ex-spouse dies. You can file for survivor benefits as early as age 60, as opposed to the regular minimum age of 62. At age 60, you are entitled to 71.5 percent of your ex-spouse’s predeceased benefits, and that increases to 100 percent as you approach your full retirement age.
If you are disabled, you can file for survivor benefits at age 50 and can switch to your personal benefits at age 62 rather than age 66.
You have the option, beginning at age 62, to file first for your personal benefit and then switch to the survivor benefit (if it exceeds your own) once you reach your full retirement age. The following chart will help determine your full retirement age:
If you remarry before reaching age 60, you are no longer eligible to collect survivor benefits based on the earnings record of your deceased spouse or ex-spouse. This is an important rule, because you can claim a spousal benefit of up to 50 percent of your ex-spouse’s benefits, but a survivor benefit would provide you up to 100 percent.
For important considerations when it comes to your Social Security benefits, read our recent blog post: Social Security – A Major Financial Decision.
Children of a Deceased Ex-Spouse
If you are caring for your deceased ex-spouse’s under-16 or disabled children (natural or legally adopted), you can apply for survivor benefits at any age. The benefit will continue until the youngest child reaches age 16 or if the disabled child is no longer so. Moreover, the 10-year marriage rule doesn’t apply in this case. Survivor benefits based on caring for a child entitles you to 75 percent of the deceased spouse’s benefit without regard to your own age when you file.
Fight Confusion with a Financial Advisor
Events like death and divorce can rattle anyone. Cut through the confusing rules for spousal and survivor benefits by collaborating with a financial advisor. The financial advisors at Global View understand your Social Security options and can help you decide which ones will provide you the biggest benefits now and in future.
Your retirement and financial future are too important to leave to chance. Get a conversation started.
