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James Sullivan
Dispelling misconceptions about Social Security spousal benefits

A trusted adviser can help divorced clients who don’t understand how the system works.

September 23, 2013
by James Sullivan, CPA/PFS

Many divorced women have misconceptions about their divorced spouse’s Social Security benefits. A CPA/Personal Financial Specialist (PFS) working with a divorced woman client (or a divorced man, since the same rules apply to both) has an opportunity to provide tremendous value by assisting her with protecting any Social Security spousal rights to which she is entitled.
 
The following hypothetical provides an example:

Dorothy is a 61-year-old sales professional with an adult daughter. She met recently with a CPA to determine whether she could afford to retire at age 62. One of the first questions the CPA asked was about her marriage history. Dorothy mentioned that she got divorced eight years ago after 20 years of marriage. She has not remarried. She never talks with her ex-husband, though her daughter occasionally provides her with updates about him. Her ex-husband is 65 and, according to her daughter, is not “planning on retiring anytime soon.” He has no plans to apply for Social Security benefits until he reaches age 70.

Dorothy has a vague idea that she can claim benefits based on her ex-husband’s work record. But she thought she would have to wait until after he filed for benefits. Her ex-husband was and still is a high earner, and she thought his monthly Social Security benefit would be close to the maximum. Dorothy does have her own work history but because she was relatively low-paid compared to her ex-husband—and took 10 years off from the paid labor force to raise her daughter—her Social Security benefit is less than half of what she expects her ex-husband’s benefit will be.

Dorothy’s story, unfortunately, is not unusual—most Social Security beneficiaries do not realize that they have certain “spousal rights” that are not necessarily lost when they divorce. There is an important difference in the rule that governs when a divorced spouse can apply for a spousal benefit versus when a still-married spouse can file. (And since Social Security is gender-neutral, any rights that Dorothy has also apply to a divorced male.)

A closer look at Dorothy’s situation

To retain Social Security spousal rights after a divorce, Dorothy and her ex-husband must meet certain requirements as shown in the table below:

Requirement

Is this requirement met by Dorothy, her ex-husband, or both?

Comment

Must have been married 10 years or more.

Yes

Must be a full 10 years.

Must have been divorced for two years or more.

Yes

Dorothy and her husband have been divorced for eight years.

He is eligible for Social Security benefits and is age 62 or older.

Yes

Yes on both counts—her ex-husband is eligible for Social Security benefits based on his own record and is over age 62.

Dorothy must not remarry before age 60.

Yes

Dorothy did not remarry before age 60.

She must be age 62.

No

Dorothy will be 62 next year.

There are, unfortunately, plenty of misconceptions about the rights of an ex-spouse. These include the following:

  • Her ex-husband must file for his own benefits before Dorothy can file for hers. This is not true—an ex-spouse does need not to wait until the other ex-spouse files for Social Security. (This is not true of a still-married spouse.)
  • When Dorothy decides to file for her benefits as an ex-spouse, she must let her ex-husband know she is doing so. This is not true—her ex-spouse does not need to know she is filing for her benefit.
  • If her ex-husband dies before Dorothy claims her spousal benefits, she loses her benefit and must rely on her own worker benefit. This is not true—the spousal benefits Dorothy is entitled to do not die with her ex-husband.
  • When she applies for her divorced-spouse benefits, she needs to bring her ex-spouse’s birth certificate, earnings history, and his current contact information. This is not true—all Dorothy has to do is prove that she was married to her ex-husband. The Social Security Administration will ask for enough information to locate his records.

Dorothy can file early (at age 62) for the spousal benefit to which she is entitled based on her ex-husband’s earnings record. At age 62, Dorothy may also file for her own worker benefits based on her own earnings history. If she elects to take benefits before her full retirement age (her FRA is 66), however, she cannot choose to select either her own worker’s benefit or her benefit as an ex-spouse. Rather, the Social Security Administration will deem her as being the first to file for her own worker’s benefit. Under the “deemed filing” rules, she will receive her own worker’s benefit plus her “spousal add-on” if her spousal benefit earned based on her ex-husband’s work record is greater than her worker’s benefit.

If Dorothy waits until her FRA or after to file, she can restrict her application to her ex-spouse’s benefit. This case assumes the CPA recommended that Dorothy take the spousal benefit at FRA. The CPA also recommended that at age 70 Dorothy switch from taking her spousal benefit to taking her own worker’s benefit.

Dorothy would do this because worker benefits have one big advantage that spousal benefits do not have—delayed retirement credits (DRCs). For every year a worker delays receipt of his or her worker’s benefit beyond his or her FRA up to age 70, the monthly payment increases by 8%. By delaying taking a benefit until her FRA, Dorothy then had the option to submit an application restricted to her benefit as an ex-spouse. At that age, the Social Security Administration no longer “deems” that she filed first for her worker’s benefit. By waiting until age 66 to file for her benefits and opting for her spousal benefit only, her worker’s benefit will grow due to DRCs. At age 70, she will be able to switch to her now larger worker’s benefit.

Of course, not every case will work out like Dorothy’s, but there is Social Security planning software available to help a CPA work out the numbers. This type of planning is crucial to protect the Social Security benefits of a divorced client.

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James Sullivan, CPA/PFS, is a financial planner in Wheaton, Ill., who specializes in working with individuals suffering from chronic illness and their families.

* PFP Section members, including CPA/PFS credential holders, will benefit from Social Security planning tools available to section/credential members such as The CPA’s Guide to Social Security Planning and Forefield Advisor. These can be found on the AICPA’s PFP website.

The AICPA’s PFP Section provides information, tools, advocacy, and guidance to CPAs who specialize in providing tax, retirement, estate, risk management, and investment advice to individuals and their closely held entities. All AICPA members are eligible to join the PFP Section. CPAs who want to demonstrate their expertise in this subject matter can apply to become a CPA/PFS credential holder.