How Social Security Works for Twice-Divorced

Q: Can you take a few more questions on Social Security benefits for ex-spouses?

If a woman has been married more than 10 years to two different husbands, does she have a choice of which man’s benefits to claim for ex-spouse payments? If she were married to the second husband for less than 10 years, may she claim benefits from the first marriage if it lasted more than 10 years? What are the payment levels: Are her benefits based on a percentage of taxes paid during the marriage, or are they based on the total taxes paid by the former spouse into Social Security? Finally, does an ex-husband have a claim on his ex-wife’s Social Security as well? --M.R.

A: For reasons perhaps better left to others, Social Security benefits for ex-spouses remain one of the most asked-about topics of this column. So, we carry on with this favorite subject.

First, to refresh memories: A divorced person who was married 10 years to the same spouse is entitled to Social Security benefits on the ex-spouse’s account. This applies equally to men and women, although most ex-spouses claiming the benefit are women.

If the ex-spouse is alive, the claimant must be at least 62. At 62, the ex-spouse is entitled to 37.5% of the wage earner’s benefits. If the ex-spouse waits until 65 to claim benefits, the payment is 50% of the wage earner’s benefits. The wage earner need not be receiving benefits in order for the ex-spouse to claim his or hers--so long as the couple has been divorced two years. (This last point varies substantially from the qualification criteria for married couples, which require that the primary wage earner be receiving benefits in order for the spouse to receive spousal benefits.)

If the wage earner is dead, the ex-spouse is considered equivalent to a widow or widower. He or she may claim benefits at 60, and is entitled to 100% of the benefits. By the way, the ex-spouse and the current spouse are both treated as widow or widower, and both receive 100% of the wage earner’s benefits; they do not split them.

Ex-spouse benefits are based on total contributions made by the wage earner during his or her working career, not just those made during the marriage.

People who have been married more than once, for longer than 10 years, may claim benefits against the ex-spouse with the largest Social Security account. And a divorced person who was remarried for less than 10 years may claim benefits on the account of the first spouse. However, as long as a person remains remarried, he or she may not claim benefits on the account of the ex-spouse.

Although all these rules sound complicated and bureaucratic--and they are--there are some larger issues involved. Once these are understood, it is easier to grasp the intent of ex-spouse benefits.

Congress has been concerned about the plight of women who get divorced late in life and do not remarry. Because many of these women did not work outside of the home and build up their own Social Security accounts, Congress has tried to find a way to provide some basic financial support. Hence, the virtually equal treatment of ex-spouses and spouses when it comes to qualifying for spousal Social Security benefits.

Finally, a point that bears repeating: Benefits paid to an ex-spouse in no way reduce the amount available for the primary wage earner and his or her current family. They are separate payments, so an ex-spouse in no way robs a current spouse of anything.

Deferred Pay of Layoff Victim May Be Taxed

Q: I was recently laid off by my employer and do not expect to be recalled to work. During my time on the job, I accumulated about $200,000 in my company’s deferred compensation plan. I am now being forced to liquidate this account--not because I need the money, but because the company wants me to.

What are the tax implications? Is there any way I can shelter this money from taxation until I retire? I am 50 and am actively seeking new work. --D.S.

A: There is one key piece of information that you did not supply us that we need to give you an answer: whether your deferred compensation plan was part of a qualified pension plan. Most deferred compensation plans are not.

In the off chance that yours was, you have the ability to roll the funds over, tax-deferred, into an individual retirement account within 60 days of receiving them.

If your plan was not a part of a larger pension plan, then you face taxation on the funds--with no special income-averaging allowances--when you withdraw them.

Converting Disability Benefits for Retirement

Q: After contributing the maximum possible to Social Security for 38 years, I went on permanent disability seven years ago at age 58. I just turned 65. May I go on regular Social Security now? Would I collect more in retirement benefits than I do from disability payments? --V.B.

A: Social Security Administration officials say your monthly payments were automatically converted from disability benefits to retirement payments when you turned 65. This was purely an accounting maneuver, and you didn’t notice anything because disability payments are the same as those for retirement.

NOTE: Last week’s column inadvertently mislabeled the types of contributions that can be made to Keogh accounts. Under the “money purchase pension plan,� you may contribute up to 25% of your net self-employed income. You pick a percentage and it remains fixed for the duration of the Keogh plan. When you establish a “profit sharing� account, you have the right to select a different percentage contribution each year, up to a maximum of 15% of your earnings. Your account can be only one type or the other. If you want both features, you must open two distinct accounts and make separate contributions.