Gray divorce presents Social Security challenges

Length of marriage, years since divorce and age of ex-spouses affect claiming options

By Mary Beth Franklin

Mar 10, 2017 @ 3:06 pm EST

While overall divorce rates in the U.S. remained stable between 1990 and 2010, gray divorce among spouses age 50 or older doubled during the same 20-year period, jeopardizing the retirement security of millions of baby boomers.

Now, one in four Americans getting a divorce is 50 or older, according to a 2013 study at Bowling Green State University. Chalk it up to another side effect of increasing longevity. Apparently, the prospect of living 20 or 30 years unhappily ever after in retirement is one reason behind the gray divorce trend.

A recent email from a reader illustrates some of those challenges and demonstrates how older divorcing spouses need to understand the nuances of Social Security claiming rules in such increasingly common situations.

Normally, a couple must be married at least 10 years before divorcing for one ex-spouse to be able to claim Social Security benefits on the other former spouse's earnings record. To claim benefits as an ex-spouse, the person claiming benefits must remain unmarried.

Additionally, the couple must be divorced for at least two years before a former spouse can file for spousal benefits on an ex's earnings record if the ex has not yet claimed Social Security benefits. That's known as being independently entitled to a Social Security spousal benefit. Both former spouses must be at least 62 years old to exercise this option.

But during the first two years after a divorce, an ex-spouse may be in limbo. She cannot collect spousal benefits if her former spouse has not yet claimed Social Security benefits. That is the situation that one reader, who asked to remain anonymous, found herself in.

"Sadly, after more than three decades of marriage, I'm getting a divorce," she wrote. "My husband is younger than I. He is 63 and I will be 65 this fall. After three calls to the Social Security office and after receiving three totally different explanations about my potential benefits, I am writing to you to see if you can figure it out."

The woman, who worked many years ago before becoming a full-time homemaker, is entitled to her own Social Security benefit of about $1,000 per month at her full retirement age of 66. Her ex-husband's retirement age benefit is substantially larger — about $2,700 per month if he claims at 66 or about $3,565 if he claims benefits at 70.

But she cannot claim spousal benefits on her ex's earnings record because he has not yet filed for benefits. She must wait until two years after the divorce is finalized to claim benefits as an independently entitled spouse.

In the meantime, she can claim benefits on her own earnings record. At age 64, her benefit would be worth about $866 per month compared to $1,000 per month if she waited until her full retirement age of 66 to claim it. Because she is not working, she doesn't have to worry about earnings restrictions if she decides to collect reduced benefits now.

But the reader wants to maximize her benefits. So she may want to wait until 66 to claim her full retirement benefit of $1,000 per month. Once the divorce has been final for two years, she can step up to a larger benefit of $1,350, which is half of her ex-husband's full retirement age benefit, even if he has not yet claimed Social Security.

Although the ex-wife would be eligible to restrict her claim to spousal benefits only at 66 so her own benefits could earn delayed retirement credits of 8% per year up to age 70, it would not be worth it in this case because her maximum benefit at 70 ($1,320) would not exceed her spousal benefit ($1,350). Only people born before Jan. 2, 1954, have the right to restrict their claim to spousal benefits at 66. Younger people will never have this claiming option because of rule changes authorized by the Bipartisan Budget Act of 2015.

Should her ex-husband decide to wait until 70 to claim his maximum benefit, it would not affect her benefit amount because the maximum spousal benefit is worth half of the worker's full retirement age benefit if collected at 66 or later. Unlike retirement benefits, spousal benefits do not earn delayed retirement credits.

But if the ex-husband waits until 70 to claim his benefits and later dies, she would be entitled to 100% of what he was collecting at time of death, including any delayed retirement credits. Even if her ex-husband remarries, both she and his widow would each be entitled to full survivor benefits.

Because the ex-wife has earned Social Security benefits on her own work record, she is eligible for Medicare when she turns 65 this fall. But even if she did not work, she would still be eligible for Medicare at 65 as a divorced spouse who had been married at least 10 years once her ex-husband was at least 62 years old.

There is no two-year waiting period after a divorce to enroll in Medicare. In fact, delaying Medicare enrollment can be a costly mistake subject to delayed enrollment penalties of 10% per year for every year one is eligible for Medicare but did not enroll.

(Questions about new Social Security rules? Find the answers in my new ebook.)

Mary Beth Franklin is a certified financial planner.

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