Will a divoce cost you half of your Social Security retirement income?
Recently, I've spoken with several people who are worried about losing some or all their Social Security benefits because of a divorce. This concern points to the confusion surrounding spousal benefits for Social Security. Divorce and subsequent marriages may alter your Social Security claiming options, but will a divorce mean your ex-spouse can take some of your hard-earned Social Security? Keep reading to find out.
One specific conversation with Mike started like this, "My attorney just told me Jim, my ex-husband, would be getting 50% of my Social Security benefits at retirement. Is this true?" This could be both true and untrue at the same time. Spousal Social Security benefits are typically 50% of the higher-earning spouse's benefits. So, potentially, the ex-husband would get a benefit worth 50% of the high-earning spouse's benefit. This could also be untrue as the 50% spousal benefit does not take anything away from the higher-earning spouse's Social Security benefit. The spousal benefit is merely based on higher-income spouses' Social Security benefit.
Do You Qualify for Social Security Spousal Benefits?
In this example, assuming the couple has been married for at least ten years (before getting divorced), Jim would qualify for the spousal Social Security benefit based on Mike's work record. Jim would also need to not get remarried. If he does get married, he would need to claim Social Security based on his own work record or take the spousal benefit from his new husband.
When Social Security was originally created, the spousal benefit was likely envisioned for the stay-at-home wife. Today with many double-income households, the gap between your own Social Security benefits (based on your work record) and the spousal benefits may not be that wide. So, when planning to maximize your Social Security benefits in retirement, it can pay to review your various Social Security claiming options.
What Is the Maximum Spousal Social Security Benefit?
To answer this question, you will need to compare the high-earning spouse's estimated Social Security benefit at full retirement age (FRA). The maximum the ex-spouse can get from Social Security would be 50% of the higher-earning spouse's benefit at their FRA. (Current FRA for those near retirement is likely 66 and a few months, pushing into 67+ a few months for younger workers). If the ex-spouse's own benefit exceeds one-half of this amount, they will not receive any ex-spousal benefits. In this scenario, if Jim (the lower-earning ex) had a Social Security benefit less than half of Mike's, he would receive a spousal Social Security benefit. So for maximum Social Security Spousal benefit in 2021 is $1506 per month at full retirement age.
The good news here is that the spousal benefit does not affect the primary earner's benefits in any way. Whether Jim takes his own benefit or receives spousal benefits, it will not alter or change Mike's Social Security benefits one bit.
I must point out that I am writing this post based on Social Security rules and regulations. There is a small chance that your divorce settlement assigned part of your pension or Social Security to your ex. In this case, there is most likely some time alimony or palimony based on when you retire or begin Social Security. As far as pension splitting is concerned, it can be split during the divorce, and each spouse can eventually make their own choices about when and how to receive the pension lifetime income.
When splitting retirement accounts or making significant financial decisions during a divorce, make sure to review the tax consequences with a trusted Fiduciary Certified Financial Planner.
