Are You Eligible To Benefit From a Social Security Divorce Loophole?

As discussed in previous posts on retirement and divorce, retirement planning for divorcees and the overall trend of the “gray divorce,” more men and women who are at or close to retirement age are choosing to divorce. That’s not to say gray divorcees are staying single, however: Pew Research reported that in 2013 67 percent of those between the ages 55 and 64 remarried. Since most older Americans maintain financial security largely through their Social Security benefits, let’s take a look at one way some of you may be able to benefit by knowing a little bit more about some social security regulations.

Claiming Social Security for Divorcees Who Have Remarried

Spouses and ex-spouses are supported through the benefits of their partners or exes, too. As with any government program, claiming Social Security benefits can be complex, even more so when divorce and remarriage are involved. The following are a couple of notable spousal benefits questions to address that could serve your financial interests in a new marriage:

Can You Claim Spousal Benefits Right Away After Remarriage?

The general, most simple answer is no. At first glance, Social Security benefits regulations say that a person needs to be married to their new spouse for at least one year before applying to receive spousal benefits. There is an exception, however, to that rule. Those who are divorced for at least two years and were married for at least 10 have another option to bypass the one-year rule.

Being divorced technically allows a person to file to claim benefits on their ex’s earnings record, even if the ex isn’t yet collecting their Social Security benefits. When a person remarries who has claimed those benefits from their ex’s earnings during the month before the new marriage, they then do not have to wait a year before claiming spousal benefits from their new spouse. Once they have filed to receive benefits from their new spouse, of course, they cannot claim spousal benefits from their ex anymore.

Are You Eligible (Old Enough!) To File Restricted Claim For Spousal Benefits?

This is a rare case of the older you are the luckier you are. Within Social Security rules is a limited loophole called the “restricted application.” This option is available to only those who were born prior to Jan. 2, 1954 and will not be a viable option by 2020. The strategy allows a person to delay receiving his or her own Social Security benefits until the age of 70, while receiving spousal benefits for the time being.

By delaying the collection of their own benefit earnings, the person utilizing the restricted application strategy earns credits on their own retirement benefits and, therefore, will see more earnings upon applying for their own benefits a few years down the road. To receive the maximum amount from any Social Security payments, applicants should reach their full retirement age (FRA). For those eligible for this file-and-delay strategy, the FRA is 66. Those born after 1954 must wait longer.

A Practical Example of this Social Security Benefits Claim Strategy

Let’s say there are two divorcees who have fallen in love and have plans to marry in the next year. The blushing bride is 62, the groom is 68. The Mrs. will just start claiming social security while the Mr. would typically have to wait a year before claiming the spousal benefit he is entitled to. However, Mr. is still entitled to file a restricted application for spousal benefits on his ex-wife’s earnings.

The upshot is that as long as Mr. was married to his ex-wife for at least ten years and the couple have been divorced at least two years, he can file for spousal benefits as a divorced individual before he marries his new Mrs. By doing so, the ex-spouse benefit will expire the month he marries, which is when the new spousal benefit begins.

This is tricky stuff, and unless you have some serious actuarial and legal experience, it is best that you consult with an experienced divorce attorney with a strong background in finance and accounting. Brent Kaspar, managing partner of Kaspar & Lugay LLP, would be a valuable counsellor in determining your eligibility for this and many other social security benefits.