One of the least understood rules for claiming Social Security benefits pertains to the rights of divorced spouses.
A recent joint study conducted for the AARP and the Financial Planning Association found that only 26% of married or previously married consumers who participated in the online survey last summer could correctly identify the key Social Security rule governing divorce.
To refresh your memory, that rule is that a marriage must have lasted at least 10 years before a divorce in order for someone to be able to collect spousal benefits on an ex's earnings record. Or to put it another way, at least a decade must elapse between “I do” and “I don't.”
Sadly, nearly one-third of survey respondents thought they could never collect Social Security benefits based on the ex-spouse's work record regardless how long the couple had been married, according to the study “Social Security Planning in 2015 & Beyond: Perspectives of Future Beneficiaries and Financial Planners.”
“This could lead to an ex-spouse foregoing a higher benefit (or any benefit at all if they had not worked for the [minimum] 10 years to qualify on their own) due to a lack of knowledge,” the study found.
And the study didn't even deal with the more nuanced rules for divorced spouses.
For example, in addition to being married at least 10 years, only those people who are currently single can collect spousal benefits on a former spouse. Plus, both ex-spouses must be at least 62 years old.
Generally, if a divorced spouse remarries, he or she loses the right to collect on a living ex-spouse unless that subsequent marriage ends in death, divorce or annulment. But there is an exception to the remarriage rule when it comes to a deceased ex-spouse. If you wait until at least age 60 to remarry, then you retain the right to collect benefits as a surviving ex-spouse.
Financial advisers who are familiar with the intricacies of Social Security rules and claiming strategies — or who write to me with their questions — can be a lifesaver for a divorced client trying to piece together a retirement income plan.
Erin Durkin, a financial planner with Westmount Asset Management in Los Angeles, emailed me with the following question.
“I am working with a client who is currently 67. He is divorced from his wife who is also 67,” Ms. Durkin wrote. “We want him to delay taking his Social Security until 70 and to claim spousal benefits now.”
Sounds like a good strategy.
“Does the client have to wait for his ex-wife to claim her retirement benefit before he can claim a spousal benefit on her earnings record?” she asked.
No. That's one of the advantages of divorce. Ex-spouses are “independently entitled” to Social Security benefits on their former spouses' earnings records as long as they have been divorced for at least two years and each spouse is at least 62 years old.
But if an ex-spouse wants to collect only spousal benefits while his or her own retirement benefit continues to grow by 8% per year up to age 70, the ex-spouse must wait until full retirement age to file a restricted claim for spousal benefits.
“What prevents his ex-wife from using the same strategy?” Ms. Durkin asked.
Nothing. Ex-spouses can each restrict their claim to spousal benefits — something married couples can't do. Married spouses cannot both file a claim for spousal benefits. In order for a married couple to maximize Social Security benefits, one spouse must either claim benefits or file and suspend benefits in order to trigger a spousal benefit for a mate.
Coincidentally, as I was responding to Ms. Durkin's questions, I received notification that my order for custom t-shirts that I had designed for a girls' weekend to celebrate an upcoming wedding was ready.
The back of the shirt lists our friend's first two married names, each crossed out, followed by her soon-to-be new name. The front of the shirt says “Third Time's the Charm.” I hope it's true.
In my friend's case, her first marriage didn't last long enough to qualify for Social Security divorce benefits. Her second marriage was to a policeman who was covered by a separate public pension system and didn't qualify for Social Security benefits. Let's hope this third union lasts forever.
Unlike divorced spouses who must be married at least 10 years to qualify for spousal benefits, married couples need only to be married for at least one year to claim spousal benefits when they reach the appropriate age.
(Questions about Social Security? Find the answers in my ebook.)
Mary Beth Franklin is a certified financial planner.