By Kathleen B. Vetrano, Esquire
King of Prussia, PA, and the Philadelphia Main Line
One receives Social Security benefits 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.
a) Many practitioners assume that the retirement age is 65 years. It is common to see alimony awards at age 65 assuming the dependent spouse becomes eligible for Social Security benefits. However, the normal retirement age is increasing. 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 each year thereafter. So, for someone born in 1940, the normal retirement age would be 65 1/2 years old. 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.
b) 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.
Derivative benefits for divorced spouses do not affect the benefits of the contributing spouse and the family allowance does not apply. After divorce, one can still receive benefits 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).
Available to surviving spouse age 60 or more or if disabled, then age 50 or more. If surviving spouses benefit on their own earnings record are higher than the widows benefits, then the widow will only collect the higher benefit and not both benefits. Remarriage after age 60 does not stop the widow benefits (or if disabled then after age 50).
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 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.
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 — type http://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. I have included below an excerpt from the website on tax, benefit and earnings amounts for 2004.
Here are some questions answered at that site:
How can I apply for Social Security benefits on the Internet?
How are my benefits calculated?
How much can I earn and still receive Disability benefits?
Are retirement benefits figured on my last five years of earnings?
What are the requirements for a survivor to receive Social Security benefits?
How much will a widow receive?
How does a divorced spouse qualify for benefits?
What are the requirements to receive Medicare benefits?
Do I have to pay income tax on my Social Security benefits?
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 if married, separated or divorced. 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 so there are 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.
What are the tax, benefit and earning amounts for 2004?
The Social Security cost-of-living (COLA) increases for 2004 were announced on October 16, 2003. The COLA amount for 2005 will be announced in late October 2004.
2004 SOCIAL SECURITY CHANGES
Cost-of-Living Adjustment (COLA): Based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2002 through the third quarter of 2003, Social Security and Supplemental Security Income (SSI) beneficiaries will receive a 2.1 percent COLA for 2004. Other important 2004 Social Security information is as follows:
Tax Rate 2003 2004
Employee 7.65% 7.65%
Self-Employed 15.30% 15.30%
NOTE: The 7.65% tax rate is the combined rate for Social Security and Medicare. The Social Security portion (OASDI) is 6.20% on earnings up to the applicable taxable maximum amount (see below). The Medicare portion (HI) is 1.45% on all earnings.
Maximum Earnings Taxable: 2003 2004
Social Security (OASDI only) $87,000 $87,900
Medicare (HI only) No Limit
Quarter of Coverage: 2003 2004
Earnings required $890 $900
Retirement Earnings Test Exempt Amounts: 2003 2004
Under full retirement age
NOTE: One dollar in benefits will be withheld for every $2 in earnings above the limit. $11,520/yr.
Year individual reaches full retirement age
NOTE: Applies only to earnings for months prior to attaining full retirement age. One dollar in benefits will be withheld for every $3 in earnings above the limit. $30,720/yr.
There is no limit on earnings beginning the month an individual attains full retirement age (65 and 2 months for retirees born in 1938; 65 and 4 months for those born in 1939).
Social Security Disability Thresholds 2003 2004
Substantial Gainful Activity (SGA) Non-Blind $800/mo. $810/mo.
Blind $1,330/mo. $1,350/mo.
Trial Work Period (TWP) $570/mo. $580/mo.
Maximum Social Security Benefit:
Worker Retiring at Full Retirement Age in March 2003
(Age 65 and 2 months) March 2004
(Age 65 and 4 months)
NOTE: For retirees born in 1938, full retirement age is 65 and 2 months; for those born in 1939, it is 65 and 4 months. Full retirement age will gradually increase to age 67 for those born in 1960 or later. $1,741/mo. $1,825/mo.
SSI Federal Payment Standard: 2003 2004
Individual $552/mo. $564/mo.
Couple $829/mo $846/mo.
SSI Resources Limits: 2003 2004
Individual $2,000 $2,000
Couple $3,000 $3,000
SSI Student Exclusion Limits: 2003 2004
Monthly Limit $1,340 $1,370
Annual Limit $5,410 $5,520
Estimated Average Monthly Social Security Benefits
Payable in January 2004: Before
2.1% COLA After
All Retired Workers $903 $922
Aged Couple, Both Receiving Benefits $1,492 $1,523
Widowed Mother and Two Children $1,865 $1,904
Aged Widow(er) Alone $870 $888
Disabled Worker, Spouse and
One or More Children $1,412 $1,442
All Disabled Workers $844 $862
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.