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Social Security and Divorce

January 4, 2019 | Posted in: Insights, Wealth Strategies

Social Security benefits of an ex-spouse can be a very important source of income during retirement, especially for the dependent spouse that put their career on hold to focus on raising a family. The Bipartisan Budget Act of 2015 brought about some changes to the social security benefit rules that will affect both married and divorced individuals.

Social Security Changes Overview

In 2000, the Social Security Administration introduced the concept of voluntary suspension: even after you claim benefits, at or after Full Retirement Age (FRA) you can elect to stop and earn deferral credits, increasing your future benefit.

Two voluntary suspension strategies are no longer available as of May 1, 2016 (with some age exceptions) as a part of the Bipartisan Budget Act of 2015: File and Suspend, and Restricted Spousal Benefits.  Just a reminder, to be eligible for a divorced spousal benefit, an individual must have been married for at least 10 years, divorced for at least 2 years, unmarried and at least 62 years of age.

File and Suspend

In the past, the higher-earning spouse could file for benefits and immediately suspend, allowing his/her spouse to then file for spousal benefit while the higher-earning spouse could earn delayed retirement credit.   Now, if an individual elects to suspend their benefit, it will suspend any/all benefits payable to other individuals based on his/her earning record (with a divorce exception noted below).

File and Suspend was not relevant for divorced spouses, since the divorced spouse is eligible for a full spousal benefit at FRA as long as his/her ex-spouse is at least age 62 (regardless of whether that person has filed for benefits).

There was concern that an ex-spouse could file and suspend their benefit as a means to keep the recipient spouse from applying for benefits under their earning record. This concern was addressed by Social Security in February, 2016 and the guidance confirmed that a divorced spouse does not have to be concerned if an ex-spouse suspends his/her benefit. If one spouse decides to suspend his/her benefit, the recipient spouse can still apply for spousal benefits off the suspended record if the eligibility requirements are met.

Restricted Application

The purpose of Restricted Application was for someone to get their own spousal benefit at FRA while delaying their own individual retirement benefit.

Relevant only in dual-income households with enough earnings for both to be eligible for SS benefits.

Filing a restricted application to obtain the ex-spouse spousal benefits while delaying individual benefits was an effective strategy.

Under the new rules, when someone files for benefits they are deemed to file for both individual and spousal benefits.  When multiple benefits are applied for, the individual receives the larger of the two.  No more applying for one benefit and switching to the other later.  The old rules are still available to those born January 1, 1954 or earlier. For those born January 2, 1954 or later, he/she must either claim all benefits (both spousal and retirement) and receive whichever is higher, or delay filing to increase the individual retirement benefit and claim none until then.