Dividing Social Security Benefits

Posted: 30 June, 2022

Couples in Nevada considering a divorce face many issues to deal with regard to division of property between the parties. If one or both are eligible for social security benefits in the future, the parties will want to consider the possibility that one party will be eligible to receive some of the other party’s Social Security benefits after the divorce, especially if there is a big difference between how much in benefits each is entitled to receive. This article will briefly consider some of the issues faced by couples in this situation.

It should first be understood that future social security benefits are not considered to be the property of either party or community property for purposes of the divorce. They are rather an entitlement to benefits eligibility for which are governed entirely by federal law under the Social Security Act. Law provides that rights to future payments under the Act are not transferable or assignable, and cannot be affected by any legal process. Accordingly, social security benefits, or the payments used to derive those benefits, cannot be divided in a property settlement agreement.

Should a spouse share in benefits?

If both parties are eligible, with one party poised to receive substantially more than the other, sharing in benefits is a “no-brainer”. What needs to be kept in mind is that only 50% of the recipient spouse’s benefits are available to the other spouse. In order to able to receive benefits “derivatively” off of the other spouse’s earnings, the benefits due the dependent spouse cannot exceed 50% of the recipient spouse’s benefits. If the dependent spouse’s benefits are greater than 50%, then not only is there no incentive to share in the other spouse’s benefits, the dependent spouse is not allowed to.

I. Basic rule

Both social security retirement benefits and social security disability benefits can be the basis for derived benefits for the dependent spouse.

Where both parties survive the divorce, the basic rule is that the party receiving no social security benefits, or less than their spouse, will be eligible to receive 50 % of their spouse’s benefits if the parties have been married 10 years or longer. There are several caveats to this basic rule. First, the party seeking their spouse’s benefits must be single, either not having married after the divorce or having been married and then been divorced or widowed for at least 2 consecutive years. Another requirement is that both parties must be at least 62 years old.

There are also some exceptions to the basic rule. First, even if the recipient spouse is not entitled to receive benefits, as long as they are fully insured, a claimant age 62 or older, if he or she meets the other requirements for eligibility (i.e. the 10 year marriage requirement), will still be eligible for benefits derived from the recipient, if the claimant and the recipient have been divorced for two continuous years.

Also, if the ex-spouse is deceased and the divorced spouse waits until at least age 60 to remarry, he or she may collect benefits as a surviving ex-spouse. Finally, if the dependent spouse is caring for the couple’s disabled or minor children, he or she doesn’t have to satisfy the marriage rule and can be any age.

II. What is “marriage” for purposes of the basic rule?

The marital status of claimants to social security benefits is generally determined by state law. The Act requires that a claimant ex-spouse be “divorced”, but “divorce” under the Act is “divorce a vinculo matrimonii”, that is, any dissolving of the bonds of matrimony. Thus, an “annulment” under most states’ laws, including Nevada’s, is considered a “divorce” under the Act since it releases the parties from their marital obligations. Similarly, since Nevada recognizes “putative spouses” for the purpose of state law, these would also be recognized for purposes of Social Security benefits.

However, even some purported marriages that would be considered invalid under state law will qualify as a “marriage” under the Act, as a “deemed valid marriage”. Under the Act, a claimant is “deemed” to have been a “wife” (or a “husband” as the case may be) if in good faith the claimant went through a marriage ceremony with the insured that would have resulted in a legal marriage. “Good faith” means that, at the time of the ceremony, the claimant did not know of the impediment. Thus, in Fontana v. Callahan 1989, the claimant for his ex-wife’s benefits had been in a deemed valid marriage with recipient, and thus could receive benefits, even though the claimant’s marriage to recipient had been annulled because the recipient spouse’s first wife had not received personal service, rendering the divorce invalid.

In Slobodnik v. Bowen, a 67-year-old applicant who was married for thirteen years prior to the annulment of their marriage, was “divorced” for purposes of entitlement to benefits as a divorced spouse. The court reasoned that Congress had intended, in providing benefits to divorced spouses, to protect persons such as the applicant, who spent a good part of their lives in marriages that were dissolved when they were far along in years.

Another example of a purported marriage invalid by state law but meeting the conditions of the Act is found in Smereczynski v. Secretary, Dept. of Health and Human Services, where a Ukrainian immigrant was held to be a “divorced wife” for social security benefits purposes, even though the husband’s first wife was rumored to be alive throughout the purported marriage.

III. 10 Year Requirement

The 10-year marriage requirement needs to be taken seriously by a party considering derived benefits and their counsel, as courts tend to strictly enforce it Albertson v. Apfel, where the ex-spouse had been married to the primary earner for three days fewer than 10 years, and argued that she should be allowed spousal benefits because three leap years occurred during that 10-year period. The court held that the statutory requirement is based on calendar years and does not distinguish between leap years and non-leap years.

What is the potential effect of a wide gap in benefits?

If there is a significant disparity in future social security benefits between the parties, and the marriage is under 10 years, then there is obviously a powerful incentive for the dependent spouse to stay in the marriage until the 10 year point, perhaps even to the point of tolerating a non-functional relationship. There is also somewhat of a disincentive for the lesser earning spouse to work or seek higher paying work, since the increased income will not result in higher derived benefits, which, again, are based entirely on the higher earner’s benefits.

If the marriage is close to the 10 year point, a different advantage arises for the higher earning spouse. Assuming the spouse with the significantly higher social security income is willing to stay in the marriage until years has passed, that spouse has additional bargaining power in any pre-divorce discussions over distribution of property, maintenance, child custody and any other issues related to the prospective divorce. This is because he or she can use their agreement to remain in the marriage until the 10 year point as a “bargaining chip” in exchange for concessions from the other spouse on the disputed issues. The parties may thus agree on a division of property, maintenance, or child custody more favorable to the recipient party than otherwise. This may sound rather cynical, but it is a consideration a divorcing spouse or their attorney should be aware of.

If the parties are truly incompatible, another alternative is to enter into a legal separation until the 10-year milepost is reached; however, such a separation can always be turned into an action for divorce by either party.

What is the effect of the reception of benefits on court rulings in the divorce action, or post-divorce?

As stated above, courts cannot divide social benefits in a divorce action (or any other type of action). However, once social security benefits are received, either by the original beneficiary or the derived beneficiary, they are income for that person. The question then is how the parties and the divorce court can treat this new income for purposes of altering existing arrangements between the parties for maintenance and child support. In the case of disability or retirement income, since these are derived from earnings by one of the parties, if the new income substantially alters the financial situation of the parties, a party may move the court which granted the divorce to consider the new income a changed circumstance. If the court finds such a changed circumstance, under its continuing jurisdiction it may order an adjustment in the maintenance or child support due to the parties.

What are the alternatives when there is a large disparity of benefits?

As discussed above, the amount available to one seeking benefits from their divorced spouse’s earnings is 50% of what the earning spouse gets. Where there is a great disparity of income to begin with, therefore, the gap between benefits received will be wide. The couples are then faced with how to address this gap, if at all. Unless both parties consider it a problem, the gap will remain since the recipient party can’t be forced, even by a court, to share its benefits with the dependent spouse. Some couples may wish to reduce or eliminate a large gap in earnings, however. Some couples may believe that considerations of fairness require a balancing of benefits. Other couples may have lingering feelings of affection or may simply want to stay on good terms with each other for the sake of their children. Another reason for parties to try to stay on good terms is the difficulty of calculating when and whether to apply for spousal benefits without having access to the other spouse’s earnings record.

One solution that is not open to couples wishing to equalize social security benefits is to formally agree that benefits will be transferred from one party to the other. The parties can agree between themselves to do so, but the agreement will be unenforceable should any party change its mind. Just as a court cannot itself divide social security benefits, it also cannot enforce such an agreement incorporated into a divorce decree.

However, parties to a divorce can agree to trade other types of property, such as real property, stocks and other investments to make up differences between social security retirement incomes. There appears to be no legal principle which would prevent the parties from agreeing to use other property to equalize a benefit imbalance, or to prevent a court from enforcing such an agreement. However, the dependent party’s attorney should be cautious about “trade-offs” between future benefits and other sources of income between the parties, as social security income is not taxable, but other types of income might be.