Social Security rules for divorced spouses

I received a question from an adviser in California today that broke my heart. Donna wanted to know if her client might be entitled to Social Security survivor benefits based on her ex-husband’s earnings record.

The hitch: the client’s marriage had lasted nine years and three months.

Unfortunately, no. For an ex-spouse to be entitled to retirement benefits or survivor benefits, the marriage must have lasted at least 10 years. Donna’s client missed the mark by nine months.

A spokesperson from the Social Security Administration confirmed my suspicions. The no-benefits decree reminded me of the Soup Nazi on Seinfeld: No soup for you!

Remember, as long as a marriage lasted at least 10 years and a divorced spouse is currently unmarried, he or she may be able to claim Social Security retirement benefits on the ex-spouse’s earnings record.

In a special rule that applies only to divorced spouses, you can claim benefits on your ex even if he or she has not yet claimed retirement benefits. The key is he or she must be eligible to claim benefits — that is, at least 62 years old with sufficient Social Security credits. To take advantage of this special rule, the couple must be divorced at least two years. And, of course, the spouse who is claiming the benefits must also be at least 62 years old.

Otherwise, the regular Social Security rules apply. If you collect benefits before your full retirement age of 66, you will be subject to earnings cap restrictions if you continue to work. That means you could forfeit $1 in Social Security benefits for every $2 you earn over the earnings cap, which for 2013 is $15,120.

A better strategy for divorced spouses who continue to work may be to wait until age 66 to file a restricted claim for spousal benefits only. That would allow the unmarried divorce spouse to collect half of the ex-spouse’s retirement benefit amount while allowing his or her own benefit to continue to grow until it is worth the maximum amount at age 70. Retirement benefits accrue delayed retirement credits worth 8% per year for every year you postpone benefits between ages 66 and 70. (Spousal benefits do not accrue delayed retirement credits).

Of course, you have to crunch the numbers to make sure that strategy makes sense. It would if your retirement benefit at full retirement age, plus a 32% increase due to the delayed retirement credits, would be worth more than a spousal benefit. A spousal benefit is worth 50% of the other spouse’s retirement benefit if collected at 66.

And if the ex-spouse dies first, the surviving ex-spouse is entitled to survivor benefits worth 100% of the deceased worker’s benefit amount — even if that worker had remarried. Both the widow/widower and surviving ex-spouse would be entitled to full survivor benefits. Survivor benefits are available as early as age 60 but would be reduced and are subject to the earnings cap if claimed before full retirement age.

Let this be a cautionary tale to financial advisers and their clients (and their divorce attorneys). If a marriage is falling apart and it’s close to the 10-year mark, string out the paperwork so the time between the marriage certificate and the divorce decree is at least 10 years. Your clients will thank you later.