The concept of divorce generally carries with it a very negative connotation, and rightly so. Parents with minor children find themselves forced to follow a schedule as to when they see their kids, property is divided, debt is allocated among the parties, and emotions are often at an all-time high. Further, divorce affects not only the two divorcees, but their children, parents, in-laws, siblings, mutual friends, and so on. The impact is undeniable. That said, with some proper planning, there are ways to help minimize the negative impact of a divorce, and even position yourself for capitalizing upon your fresh start.
Many people do not realize the extreme benefits of Social Security, and more specifically, the fact that a divorce does not necessarily prevent a person from electing Social Security benefits of an ex-spouse. The rules are a bit complicated, but generally speaking, you may receive one-half of the monthly Social Security benefits based on your ex-spouse’s work record if: (1) your marriage lasted at least ten years; (2) you are currently unmarried; and (3) you are age sixty-two years or older. It doesn’t matter if your ex-spouse is taking his/her Social Security benefit, nor whether there have been multiple marriages and divorces. Nor does the ex-spouse have any control, or even know whether you choose to elect to take against his/her benefit.
Contrary to what many people think, the fact that a former spouse may elect one-half of an ex-spouse’s Social Security benefits does not in any way affect the former spouse’s Social Security. As such, if a breadwinner is married and divorced three times, for example, all three of his/her former spouses may elect one-half of his/her Social Security once the former spouse turns age 62, is single, and was married to the person for at least ten years. In other words, “When Harry Met Sally” can turn into “When Harry Married Sally, Then Susan, Then Samantha.” If Sally, Susan, and Samantha each married Harry for at least ten years, are single, and at least age 62, all three women can elect fifty-percent of Harry’s Social Security earnings, all while Harry still gets his full Social Security benefits!
Of course, unlike Social Security, other financial sources are not nearly as generous. A divorced person who forgets to remove his/her former spouse from a financial account may end up losing that benefit to the former spouse upon his/her death, or at the very least, cause a great deal of grief for his/her loved ones. Even if the newly divorced person is prudent and updates his/her Last Will and Testament to remove his/her former spouse as a beneficiary under the Will, trouble can still arise if divorcees do not update their beneficiary designations of their life insurance, retirement accounts, and other financial policies.
Payable on death beneficiary designations supersede the terms of a Last Will and Testament. Therefore, even if Harry’s revised Will removes his former wives as a beneficiary, the life insurance company or other financial institution may mistakenly release the funds to the former wife listed as beneficiary of the policy, or at least hold on to the funds until the issue is resolved. Updating your Will and financial policies is key to making sure your post-divorce assets are distributed the way you intend.
Although divorces can leave a sour taste in your mouth, keep in mind these strategies which can make your life a bit sweeter.
The information contained herein is for informational purposes only, and is not legal advice or a substitute for legal counsel. You should not act or rely on any information herein.
