By Kathleen B. Vetrano, Esquire
King of Prussia, PA, and the Philadelphia Main Line
This article addresses Social Security issues often encountered when there is a divorce.
Although Social Security benefits are not marital property, because such benefits constitute income, they deserve consideration when a couple divorces. Social Security benefits are a potential source of child support, spousal support, or alimony–or as additional income that lessens alimony obligations.
Social Security is a system of social entitlement; it is neither welfare nor based on means. The Social Security system provides benefits not only during retirement but also for survivors and dependents in case of death or disability.
Social Security benefits are received in one of two ways: (1) based on one’s contributions to the Social Security system or (2) as a spouse of such contributor, which benefits are called derivative benefits. The recipient will receive benefits in the manner that provides the higher benefits.
After divorce, benefits can be received based on the contributions of a (former) spouse–if the marriage was of at least 10 years duration. (Therefore, if the marriage is near 10 years duration, the divorce should be delayed to preserve the option of receiving derivative benefits.)
In addition, the spouse from whom benefits are derived must be eligible for benefits–that is, at least age 62 and fully insured–even if not actually receiving benefits. (This may be particularly important if the lawyer represents a dependent spouse who is older than the “contributing spouse.”)
On the other hand, the qualifications of the dependent spouse are (1) being at least 62 years old and (2) remaining unmarried.
If the dependent spouse remarries, such spouse will not be eligible for derivative benefits from a contributing spouse. However, if such remarriage terminates, the dependent spouse becomes eligible for derivative benefits once again (from the (former) contributing spouse).
If a dependent spouse has been married more than once and, each time, for at least 10 years, derivative benefits can come from the former contributing spouse who would “provide” the higher benefits.
The marriage may be a legal marriage, a common law marriage (as determined by law of state of residence), or a deemed marriage (marriage may be deemed valid by the Social Security Administration if the relationship cannot be established under state law if, in good faith, a person went through a marriage ceremony that would have resulted in a valid marriage except for a legal impediment).
Derivative social security benefits may be available even if the former spouse predeceased the applicant, so called widow(er)’s benefits. Again, the couple must have been married for at least 10 years before final divorce decree, and the contributing spouse must have been fully insured at death (contributed to Social Security for 40 quarters to qualify for full benefits).
The surviving divorced spouse need only be age 60 (or, if disabled, at least 50), provided there is no remarriage before age 60. This point is critical for a spouse who intends to remarry shortly before turning 60. By delaying the marriage until age 60 is attained, the benefits would not be lost. The surviving divorced widow receives 100 percent of the benefits instead of 50 percent if the former spouse is alive. Remarriage does not prevent eligibility for disabled surviving spouses or disabled divorced surviving spouses who marry at age 50-59.
Social Security benefits are paid to the children when at least one of the parents becomes disabled, retires, or dies.
Many times in separated or divorced families, the issue is whether the support obligor gets credit for the benefits the obligor is paying his dependent. In Pennsylvania, there is a rebuttable presumption of credit for Social Security payments made directly to a child of retired parent when determining parent’s obligation to pay child support.
The child, who must be under age 18 or, if still in high school, under age 19 (unless the child is disabled) can be the contributing spouse’s biological child, adopted child, stepchild, or even a dependent grandchild.
In order for a child to be eligible for benefits, the child must (1) have a parent who is disabled or retired and entitled to Social Security benefits or (2) have a parent who died after having worked long enough to be entitled to be entitled to Social Security benefits.
Within a family, a child may receive up to one-half of the contributor’s retirement benefits or disability benefits, or 75% of the deceased parent’s basic Social Security benefit (up to the family maximum).
If a stepchild is receiving benefits and contributing spouse becomes divorced from the child’s parent (in July 1996 or later), the stepchild’s benefits will end the month after the divorce becomes final.
Social Security benefits can be reached to meet alimony and child support obligations. When computing income to determine spousal and/or child support obligations, income includes Social Security benefits.
Federal taxes may be imposed on 50% to 85% of the Social Security benefits depending on the combined income (the sum of adjusted gross income plus nontaxable interest plus one-half of Social Security benefits). (See Internal Revenue Service (IRS) Publications 554 and 915 for accurate computations and amounts of exclusions, which change annually.)
Effective January 2000, the Retirement Earnings Test, reducing social security benefits, was eliminated for individuals age 65-69, although it remains in effect for those collecting benefits between age 62 and 64. One dollar in benefits will be withheld for every three dollars in earnings above certain limits if working between ages 62 and 64. A modified test applies for the year an individual reaches age 65. Again there is no limit to the earnings after age 65.
Often, alimony is calculated to terminate or lessen when the dependent spouse becomes eligible for Social Security benefits. It is important to know what the normal retirement age is and the price of receiving benefits before the normal retirement age. Age 65 is the normal retirement age only for those born before 1937. For those born between 1938 and 1942, the normal retirement age is 65 plus 2 months for 1938 birth date and an additional 2 months for year thereafter. For those born between 1943 and 1954, the age is 66. From 1955 to 1969, the normal retirement age is 66 years plus 2 months for each year after 1955. People born after 1960 will have to wait until age 67 for normal retirement.
Although retirement benefits are available at age 62, the amount received at such age will be less than what would be received at normal retirement age; the reduction is about 20%. When a divorced dependent spouse receives benefits at age 62, the reduction is about 25%.
Also, even if Social Security retirement benefits are secured at age 62, Medicare benefits do not commence until age 65. If a reduction in alimony is contemplated at age 62, there will be a significant lifetime loss of benefits, and it will be necessary to make provisions for health care coverage until the normal retirement age.
Another limitation on when the benefits commence is when a divorced spouse seeks to collect derivative benefits based on the former spouse’s earnings who is not collecting social security benefits. In this situation, the dependent spouse cannot start collecting these derivative benefits until two years after the entry of the divorce decree. The dependent spouse could, if independently entitled to benefits, collect benefits based on his/her own earnings record.
Social Security information is available on the Internet – https://www.ssa.gov to find everything you want to know and then some. The site is very easy to use and has answers to many, many questions. For example, the maximum benefit depends on the age at which a worker chooses to retire. These are based on earnings at the maximum taxable amount for every year after age 21.
Here is a list of questions answered at that site:
Individuals who are 61 years and 9 months or older and plan to start benefits within four months, may be able to apply online. The Social Security Administration uses state-of-the-art encryption to ensure that confidential information is secure.
Consider social security benefits at divorce. If you are a surviving divorced spouse planning to remarry close to age 60, wait until age 60 to avoid the remarriage penalty. If you are a dependent spouse getting a divorce, at any age, and your marriage is close to 10 years, defer the divorce there is 10 years from the date of marriage to the date of the divorce decree. Before having alimony cease at age 62, consider the reduction of benefits and inability to qualify for Medicare. If a divorcing dependent spouse is planning to receive benefits based on the earnings record of the spouse who is not receiving benefits, make sure that benefits are not sought until two years after the date of divorce.
Kate Vetrano is a partner at Vetrano|Vetrano & Feinman LLC in King of Prussia and a fellow of the American Academy of Matrimonial Lawyers. She serves as chair of the Elder Law Committee of the Family Law Section of the American Bar Association.
Our experienced family lawyers take the time to fully understand the financial and emotional complexities that can be involved in separating two lives. We offer the patience and resources to effectively guide clients through a divorce, addressing all the challenges they may face in moving forward with their lives. To learn more about how we can help protect your rights and interests in a complex divorce, contact the Pennsylvania divorce attorneys at Vetrano | Vetrano & Feinman LLC.