Going through a divorce is a stressful time. And approaching retirement brings on fears of many unknowns. Put them together, and wow, what a double-whammy.
The public perception of Social Security benefits is loaded with many false assumptions. Here are a few facts about Divorce and Social Security Benefits you should know if you are approaching retirement age.
If a couple has been married for more than 10 years, the lower earning spouse is entitled to at least one-half of the benefit paid to higher-earning spouse. This is true if you are married or divorced (so long as the lower earning spouse has not remarried). This is also true if the lower earning spouse had little or no earnings record of her own. So, if Jim and June were married for 25 years, Jim worked and contributed to Social Security and is entitled to $1,400 per month, but June never worked, upon Jim’s retirement, June is entitled to $700 per month as a spousal benefit. This is true in almost all cases. It does not reduce Jim’s benefit one cent – even if they get divorced or are already divorced.
The effect of divorce.
Divorce has almost no effect on the above scenario. If Jim and June divorced after 15 years of marriage, and 15 years later Jim retired, June would still be entitled to $700 per month; and Jim’s benefit would not decrease (so long as June has not remarried). This is true even if Jim remarried.
The amazing “File and Suspend” procedure
If Jim doesn’t want to retire when June reaches her retirement age, he can “file and suspend” anytime after he reaches age 62, allowing June to begin collecting her monthly benefit without altering his entitlement one bit. He can still wait to age 67 if he wants to begin collecting his higher monthly amount.
The effect of death.
If June is collecting a spousal benefit based on Jim’s earning record, and Jim dies, she immediately “steps up” to his monthly rate. So June begins receiving a $1,400 check in her own name. This is true whether they are still married or divorced.
Many people think their monthly benefit will be reduced if the lower earning spouse claims the spousal benefit. The Social Security Administration has many hard working, knowledgeable and helpful staff members guiding people through retirement every year who will tell you that people often refuse to properly claim the spousal benefit thinking it will reduce the higher-earning spouse’s benefit.
And the “file and suspend” procedure sounds so complicated (although it really isn’t) that often divorcing spouses have to obtain an order from a Probate Judge directing the higher-earning spouse to do it.
Know the correct facts.
In litigated divorces, the parties are often at odds and opposing each other so strongly that doing something like the “file and suspend” procedure never happens. One side feels like he or she is giving something up to the other side, when in fact that is not the truth. Or, worse, the litigation has engendered so much animosity that the parties are not inclined to to anything to help the other side.
In mediation, however, we encourage people to explore all options, and get sound advice from knowledgeable financial advisors to maximize the benefits to both parties. That’s why many divorce mediators know about and encourage “file and suspend” in the right circumstances, but many divorce litigators never do.
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