What the Social Security Rules Change Means to You

Effective May 1, the Social Security Administration closed the “file and suspend” loophole. How does this change affect divorced individuals?

Previously, a married person could file for Social Security benefits at age 66, or at any other eligible age, which triggered his or her partner's spousal benefit. If the person voluntarily suspended payments, his or her benefits continued to increase at roughly 8 percent a year, and the couple pocketed the spousal benefit, or half the beneficiary's benefit, as the unpaid benefits continued to accrue interest.

Lawmakers eliminated this option, which was also called the “claim and suspend” strategy, in the 2015 budget bill, citing concerns that wealthy retirees were manipulating the system.

Divorce and Retirement

Although the government closed this loophole, the former spouse rule remains in effect. This rule allows eligible divorced spouses to claim retirement benefits if they were married at least ten years and do not remarry.

Nevertheless, a late-in-life divorce often has a significant impact on retirement planning. As a rule of thumb, maintaining separate households requires at least 25 percent more resources, and many older individuals are tempted to stop making retirement contributions, or cash in their plans, to make up the difference.

These strategies nearly always have long-term consequences. Instead, financial planners suggest the following:

  • Sell the House: If the house is sold as part of the divorce while Husband and Wife are still legally married, they can double the capital gains tax exemption to $500,000.
  • Protect Spousal Support Payments: Divorce disability insurance is rather inexpensive and will ensure that payments continue if the obligor spouse dies or becomes disabled.
  • Stay on the Job: To remain in the workforce as long as possible, consider asking for flex time at work, and remember to use Family Medical Leave Act leave time, if it is available.
  • Use Assets: Think of marital assets, such as stock options and deferred compensation, as retirement assets, and make sure they are divided accordingly.

About a quarter of all married couples over 50 will divorce, and divorced women in this age group are more than twice as likely to be impoverished as divorced men of a similar age.

Gray divorce has financial and emotional consequences. For a confidential consultation, contact an experienced Naperville family law attorney. Convenient payment plans are available.


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