Don’t Forget Social Security in Divorce

Posted on Posted in Divorce Financial Planning

Typically, the first set of financial tasks when getting a divorce is to compile documents and other information. This is often a stressful time and can lead to some assets being overlooked or forgotten. Below are tips that offer some guidance.

One important financial factor may be Social Security benefits. During the discovery process, make sure to request the Social Security Administration’s benefit verification letter for yourself and your spouse. This will provide you with benefit and payment information and earnings records. Specifically, it provides an estimate of retirement, disability, and survivors’ benefits.

Social Security benefits themselves are not a marital asset that will be subject to division. But it can be considered as one factor in dividing all other marital assets. This can be especially true, if one spouse doesn’t have a significant earning record. In the case of a spouse who has sacrificed their career goals and aspirations to support the family home, this can result in a harsh financial outcome. So one spouse will get the full benefit and the other can only receive 50% of the benefit, if certain conditions are met. In this case, alimony might be used to equalize the benefits for the stay-at-home spouse.

Although you may want to dispose of anything related to your ex, make sure to at least keep their Social Security number, date and place of birth and their parents’ names. If you are eligible to collect Social Security under your spouse’s benefit, this information will be needed. And even if you signed a prenup prior to marriage, you cannot waive your right to apply for or receive Social Security under your spouse’s benefit, provided that you qualify.

Another scenario may be that your ex has passed away – generally you can apply for widow(er) benefits at age 60 – IF there is no remarriage before age 60. If you want to remarry, you may want to wait until after you are 60 and the benefits are being paid out. If you remarry before age 60, then you forfeit the benefit.

For example, Sarah is 58 and a widow. She has found a wonderful partner and wants to remarry. However, if she goes forward with the marriage she will lose her deceased husband’s benefits – which compounded over years, can come out to be a significant dollar amount. However, if she waits until she is age 60 and the benefits are being paid, she will not lose this source of income. In future articles we will discuss how payments are generally calculated for both divorced and widowed spouses. The rules are complicated and vary depending on the situation, so you may want to talk to a Social Security representative about the options available before making any decisions.

If you are a parent of a child and are currently receiving Social Security benefits, that payment may be included in your gross income for use in calculating child support. If you are the spouse who will receive the child support, make sure this source of income is not overlooked.

Finally, if you decide to change back to your maiden name, notify Social Security right away so that you are getting credit for any withholding. You also don’t want a mismatch between your tax return and the Social Security Administration – this can cause a delay in any refund you may be receiving.
You may want to consult a Certified Divorce Financial Analyst (CDFA) for more guidance. A CDFA uses his or her knowledge of tax law, asset distribution, and short- and long-term financial planning to provide assistance in working towards an equitable settlement. CDFAs educate their clients by providing a thorough knowledge and understanding of the often-complicated financial decision.

Please note neither LPL Financial nor any of its representatives render legal advice. This information is not intended to be a substitute for specific individualized legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.