There has been a dramatic change in social security law that will affect spousal benefits and therefore, must be considered by parties facing divorce. The new rules went into effect (with virtually no warning to the public) on November 15, 2015.
Historically, ex-spouses could each independently decide when to file for social security benefits based on his/her own qualifying factors. One ex-spouse could file for social security benefits without regard to whether the other spouse had yet done so. Under the new rules, an ex-spouse cannot collect the spousal benefit unless the worker is in pay status and receiving his/her social security benefits already.
This will have a major impact on negotiating settlements in divorce cases. A relatively healthy and vigorous 60 year old who enjoys working and wants to maximize his/her benefit, may well defer collection of social security benefits until age 70. The ex-spouse will no longer be able to elect to take an earlier distribution of the spousal benefit, but will now have to wait until the worker claims the benefit at age 70. Furthermore, in a particularly bitter or acrimonious case, a worker who is not financially dependent on receipt of benefits could foreseeably defer receipt of social security benefits just to deprive the ex-spouse of much-needed support.
It is not difficult to imagine a number of scenarios that will call into question the need for careful consideration of social security rules and their impact on spousal benefits in divorce cases. Divorce lawyers will now have to consider how the new social security spousal benefit rule will impact a case, and utilize these factors in negotiating a divorce settlement. Astute attorneys will appreciate the need to consult with financial planners to help determine effective financial planning strategies in divorce negotiations for each particular case.
It is interesting to note that in Clark v Clark, 297 Mich App 172 (2012), the Michigan Court of Appeals ruled that a worker can defer receipt of social security benefits as part of financial and retirement planning, without being penalized (by imputation of income) for purposes of determining the proper amount of child support. If the child support payer defers receipt of social security retirement benefits as part of an “economically driven investment strategy” he will not be penalized. If, on the other hand, the child support payer defers receipt of social security benefits to deliberately reduce income and avoid paying a higher amount of child support, then the court may impute that benefit as income to the worker and order that the higher amount of child support be paid. It is safe to assume that similar reasoning would apply to a spousal support case.
It is clear that a divorce attorney must have a good working knowledge of social security law and its interplay with divorce settlement negotiations and support issues in order to ensure that a client’s financial interests are protected.
