What Happens to Retirement Social Security Benefits in Divorce?
Retirement and Social Security benefits usually play a large role in a person’s long-term financial planning and stability. Anyone experienced with divorce will know that this event upends many financial goals, and requires most couples to make drastic changes to their standard of living and monthly budgets. Depending on a person’s age and capacity to find sustainable work at the time of divorce, the loss of a spouse’s retirement and Social Security benefits could be devastating. Financial recovery from divorce can take years, and understanding when and if these benefits are divided in divorce is essential to determining what financial adjustments are necessary, and if other sources of support available through divorce should be pursued. These benefits fall under the division of marital assets, which is the penultimate issue in many divorces because a person’s financial wellbeing is so closely tied to the outcome. A discussion of how the law treats these benefits in divorce, and important considerations for negotiating the division of retirement benefits so a settlement is reasonably fair, will follow below.
Retirement accounts are usually one of the most valuable assets a person owns, but they are frequently complicated to transfer post-divorce, and if done incorrectly, can leave one spouse with a significant financial burden. Only funds accumulated during the course of the marriage will be subject to division, so for accounts that pre-date the marriage, only the funds earned during the marriage will be calculated and divided.
There are three main retirement plans: individual (IRAs), employer-sponsored (401(k)s), and defined-benefit (pension). Which type of account a spouse owns will determine how it may be transferred, which in turn is likely to influence how the other spouse decides which assets he/she wants to keep or relinquish. Defined-benefit plans or pensions allow a former spouse to elect to receive a lump-sum at the time of divorce, or elect to receive future payments at the time of retirement. The option chosen usually depends upon the present financial needs of the spouse, and how he/she plans on using the money, i.e., to pay off bills vs. investing it. Contribution-based plans (401(k)s), on the other hand, are typically divided according to the percentage a person has vested into the account at the time of divorce. Special rules allow the party who owns these accounts to transfer money to the other spouse at the time of divorce, but avoid the 10 percent early withdrawal penalty.
Note that the division of retirement plans requires the execution of a Qualified Domestic Relations Order (QDRO) before a spouse may collect any portion of these benefits. However, the federal government and many Florida municipalities do not accept QDROs, so spouses will have to find another asset of equivalent value, or find a creative way to transfer benefits via court order.
Social Security Benefits
Social Security benefits are an important safety net for many individuals post-retirement, but to collect based upon a former spouse’s work record, the following requirements must be met:
- the ex-spouse must be eligible himself/herself to receive Social Security benefits, which means the ex-spouse is at least 62 and has worked at least 10 years;
- the marriage lasted ten years or more;
- the person seeking benefits is at least 62 years old;
- the person seeking benefits has not remarried; and
- the Social Security benefit of the person seeking benefits is lower than the ex-spouse’s.
Assuming these conditions are satisfied, an individual is entitled to up to 50 percent of an ex-spouse’s Social Security benefits, and remains entitled to collect even if the other spouse remarries or become eligible to collect his/her own benefits.
Get Legal Advice
The division of marital assets is one of the most complicated aspects of divorce, and a court will only decide this settlement once, so getting a fair outcome is crucial. The Tampa Bay law firm All Family Law Group, P.A. brings a customized approach to each divorce, and will work to achieve an outcome that will benefit both you and your family
by Lynette Silon-Laguna Google+