Major Social Security Changes Hit Divorcees Hard

By: Rosemary Frank, MBA, CDFA, ADFA, CFE, MAFF
Last Update: October 29, 2016

The biggest Social Security changes in 30 years are in effect immediately and directly impact all divorcing people in the U.S.

Social Security rules for claiming benefits, especially spousal benefits, have been dramatically changed by the Bipartisan Budget Act of 2015, which was signed November 2, 2015. These changes became effective immediately, and everyone is scrambling to understand them.

This was all done with virtually no advance notice and no public government review or congressional hearings. Explanations have been scarce. The changes will directly impact how both spouses in a divorce negotiate for maintenance or alimony and how they anticipate future income from Social Security benefits.

In the past, ex-spouses were able to anticipate making independent decisions regarding when they would file for Social Security benefits. Being divorced, they each had their own individual qualifications to meet for filing a claim: age, marital status, benefit entitlements, etc. If an ex-spouse wanted to file a claim based on a worker’s benefit, the ex-spouse could do so without consideration of the worker’s filing status. That has changed. Under the new rules, a worker must be actively collecting benefits in order for an ex-spouse to be able to collect a spousal benefit based on the worker’s benefit.

This is a significant change. Perhaps it is in the worker’s best interest to delay benefits until age 70 so as to maximize their own benefit. That means the ex-spouse must also wait until the worker collects benefits. However, there is no monetary benefit to the spouse to wait, since their benefit will not increase beyond the worker’s Full Retirement Age (FRA) benefit, which may have been at the worker’s age 66. The spousal (or ex-spousal) benefit is equal to 50% of the worker’s FRA benefit, adjusted for reductions if the ex-spouse is under their own FRA.

Negotiating trade-offs in Social Security claiming strategies just became part of your divorce negotiations. Such trade-offs have associated costs to each party and will need to be compensated with other assets of the marital estate.

As part of the negotiations, the exact birth dates of each party will need to be taken into consideration and their respective FRAs aligned. This is complicated by the tiered levels of FRAs for persons born between the years 1954 and 1960. FRAs are at two-month intervals (66 yrs. and 2 mos., 66 yrs. and 4 mos., etc.) up to age 67.

Determining the FRA of each party is the first step, then each must commit to a time for collecting Social Security benefits. Hence, the negotiation. These terms should then be specified in the Marital Dissolution Agreement (MDA). Future enforcement of these terms will be similar to enforcement of all other terms of the MDA.

Another aspect of the new rules are that an ex-spouse is completely at the mercy of the worker spouse regarding the availability of benefits. The worker spouse can actually block the ex-spouse from receiving much needed benefits by simply not collecting benefits themselves. This is not a favorable situation, given the continued animosities that occur between some ex-spouses.

In all instances, discuss these issues with your attorney during your divorce. If they are not familiar with these new rules, find someone who is. Financial professionals who have a specialty in the financial issues of divorce should also be able to help you understand how – and if – the new rules might affect you.


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