Even if your marriage ended more than 20 years ago, the ex-spouse could be entitled to a portion of your retirement funds through Social Security. At the time of your divorce, the decree would have specified what retirement assets should be split between the two spouses, but you should also be aware of how your former marriage might impact Social Security benefits.
It’s important to realize that individual retirement plans and Social Security are separate, but it could be the case that your former spouse is entitled to both. The decree may have outlined what IRA or pension benefits were to be split between you two, and this could be carried out with a QDRO. Bear in mind that this might not be the end of the road when it comes to retirement fund eligibility. Some people have the mistaken impression that because their divorce is long over and because retirement funds were already distributed that there is no more obligation. It can come as a rude awakening if you find out that some of the funds you were counting on for retirement will be divided between you and a former spouse.
If your marriage lasted longer than 10 years, your former partner could claim eligibility for a rate of spouse contribution when it comes to Social Security. Since Social Security is not usually addressed during a divorce, it’s easy to get caught up in misunderstandings about how this works. It’s good to know, though, even if you’re just going through the process of a divorce now, how Social Security currently works with regard to spousal benefits.
An unmarried and divorced spouse could be entitled to 50% of the former spouse’s Social Security beginning at age 62. This is because at least currently, the law considers marriage like a business partnership or a contract. If you think of the marriage as a business partnership, each individual has 50% ownership, even if only one spouse is working. During the process of divorce, retirement plans like ESOPs and 401(k)s get split up using what’s known as a Qualified Domestic Relations Order. This document makes it clear what each party is entitled to and outlines the amount of tax each party is responsible for. A QDRO reduces the opportunity for future confusion about the accounts an individual owns outside of Social Security.
You’ll need someone to help you put together the QDRO, but you might also want to ask your accountant or financial specialist about how Social Security could influence you in the future so that you know what to expect.
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