Most Michigan residents have a basic understanding of Social Security, or at least realize that Social Security payments come out of every paycheck that they earn. The benefits of paying into the Social Security system often do not come until later in life when a person has reached retirement age. If people are relying to a certain extent on these benefits to help during retirement, it is important to understand how a divorce may impact the expected amounts.
There are varying ways to handle how a change in marital status affects Social Security benefits as a retirement asset. The divorced spousal benefit allows spouses to opt for their own benefits or their ex-spouse’s benefits. Individuals qualify for this option if they were married for 10 years or more and are currently divorced for at least two years. Unfortunately, this option does not exist for couples who did not reach the 10-year mark in their marriage.
Divorced parties can also claim both spouses’ benefits. For example, a person could claim the divorce spousal benefit at the retirement age of 66 and then use his or her own Social Security at the age of 70. This allows an individual’s personal benefit to grow a few more years and collect a larger monthly amount in the end. If done correctly, the extra amount in benefits could be substantial. The Social Security Administration assumes that the filer wants the higher of the two benefits so if this is not the case, it is critical to specify that a filer is restricting the personal benefit until a later date.
As much as divorce can impact Social Security benefits, so can a remarriage. Individuals will generally lose their eligibility for any benefits from a former spouse or previous marriage. Once remarried, spouses will become eligible for the new spouse’s benefits after one year.
Social Security decisions may seem straightforward but can quickly be disrupted due to family law situations like divorce. For this reason, it may be a good idea to consult with a Farmington Hills divorce lawyer to make sure that there are no financial surprises, especially for a divorce that comes during retirement age.
Source: Fox Business, “5 Ways Divorce Can Impact Your Social Security Benefits,” May 13, 2014