Unlikely Bedfellows: Social Security & Divorce

Through a little known Social Security benefit, our government recognizes the financial value of the work that stay-at-home moms do to support their families. We all know that the stay-at-home mom is on the job around the clock and it’s hard to put a dollar value on her estimable contributions.

But if marriage ends in divorce, the stay-at-home mom’s financial dependence can be calamitous. The opportunity cost of the mom staying home can be high, as it’s harder for her to reenter the work force the longer she is out of it. She also has to defer building a career and developing expertise, with commensurate pay, and she loses the chance to save for retirement and benefit from the magic of compounding interest. While alimony and child support can help protect a lifestyle for the mom and children post-divorce, Social Security offers a divorced spouse’s benefit to the mom to help with retirement.

Of course, these are gender-neutral benefits, and more dads now than ever are assuming the role of the supporting spouse. When I use the term mom, is it only because it is still more common that women are the ones who choose to take the off ramp, but there are certainly many dads to whom this applies.

The Rules
Divorced spouses are eligible for a benefit if:
1. They were married to their ex-spouse for 10 years.
2. They have been divorced for 2 years.
3. They are not remarried, and if they did remarry that marriage ended.
4. Their ex-spouse is eligible for benefits.

If these criteria are met, divorced spouses can claim ½ of their ex-spouse’s full retirement amount at their Full Retirement Age (FRA), which is between age 65-67 depending on their birth year, or a reduced benefit at age 62, similar to what they could claim if they were still married to their ex-spouses.

The Nitty Gritty
Must take higher benefit.
If the divorced spouse’s own benefit is higher than ½ of their ex-spouse’s benefit, the divorced spouse must take their own benefit.

Does not include delayed retirement credits.
The divorced spouse’s benefits do not include delayed retirement credits for which the ex-spouse is eligible. Delayed retirement credits accumulate when benefits are delayed past FRA, and increase by a percentage each year until they max out at age 70. For example, if the birth year is 1943 or later, benefits increase by 8% per year, which is a mighty fine rate of return.

Can optimize benefits by filing a restricted application.
If the divorced spouse was born before January 2, 1954, they can optimize their benefits and take both over time. Specifically, the divorced spouse can take the divorced spouse’s benefit, let their own benefit accumulate until it becomes higher than the divorced spouse’s benefit, then switch. This claiming strategy is considered a loophole and was closed for anyone born January 2, 1954 or later in the Bipartisan Budget Act of 2015.

Ex-spouse’s filing status is immaterial.
The ex-spouse does not need to have filed for benefits for the divorced spouse to file on the ex-spouse’s record.

Ex-spouse’s marital status is immaterial.
It doesn’t matter if the ex-spouse is remarried, as the divorced spouse’s claim to the benefit does not affect the ex-spouse’s record or the ability of any current spouse to claim benefits.

The Lowdown
There’s nothing simple about Social Security or divorce, but the welcome news is that a divorced spouse’s benefits could add up to a windfall of thousands of dollars per year. If a couple is considering divorce after 9 years and 11 months it could behoove them to wait a month. The vow “for richer or poorer” may not have endured, but Social Security has a palliative for that.