Gray divorce is on the increase. As Boomers age they are deciding to divorce. There are a number of issues that are of particular importance. My very talented colleague Andrea Dunbar has written today about Social Security and Medicare benefits.
While each divorce case presents its own set of complex facts and circumstances, divorces involving older clients (also known as “gray divorce”) can be especially complex. Issues such as Social Security, Medicare, retirement benefits and estate planning are, more often than not, fringe issues when dealing with couples divorcing at other points in life. These issues come to the forefront, and sometimes become of critical importance when a divorce occurs later in life.
It is important to know the ins and outs of Social Security when going through a divorce during advanced age. The rules of Social Security, like most other federal benefits programs, are counter-intuitive and often lead to surprising results.
A widow or widower at full retirement age or older receives 100% of a deceased spouse’s basic Social Security benefit amount. The same is true even if the spouses are divorced, as long as they were married for at least ten years and the spouse seeking to collect benefits is not remarried. Johnny Carson provides an interesting illustration of this rule: He was married four times, each marriage lasted at least ten years, and none of Johnny’s former spouses remarried. Upon Johnny’s death, all four of his ex-wives qualified for and received an amount equal to his full Social Security benefit.
The Social Security Administration provides a benefit option to married and divorced spouses known as “claim and suspend.” Claim and suspend allows a married or divorced couple to simultaneously take advantage of spousal benefits and delayed retirement credits. A former spouse of a worker who has reached full retirement age and claimed benefits upon reaching full retirement age her/himself, may claim and suspend, and receive an amount equal to 50% of the worker’s benefit each month without affecting the former spouse’s ability to continue to work until age seventy (70); thus, earning delayed retirement credits which increase the former spouse’s ultimate benefit. This of course is so long as the former spouse is not remarried and the marriage lasted at least ten years.
Some state courts take the position that making an equitable division of Social Security benefits upon divorce violates federal law. Where one spouse worked and the other stayed home, or both spouses worked but one spouse was the higher wage earner, the Court’s refusal to make an equitable division of Social Security benefits can result in serious inequities, especially when a couple is divorcing at or after full retirement age. Some courts remedy this inequity by assigning a larger share of marital assets to the spouse with the lower social security payout.
I recently attended a Continuing Legal Education Seminar relating to divorcing later in life and learned a great deal of useful information relating to Medicare. The overview provided by the speaker and materials from the seminar, and summarized below, merely scratch the surface of understanding Medicare benefits.
Medicare is a federal program of health insurance for people age 65 and over (generally). The benefits are individual and uniform (unlike Social Security where spousal benefits can differ).
For citizens and legal residents (or their spouses) who have worked a minimum of 40 quarters, Medicare benefits begin the first of the month in which the beneficiary turns 65. On that date, the beneficiary automatically gets Medicare Part A (hospitalization coverage), which has no premium, and is eligible to receive Medicare Part B (doctors, labs and outpatient services), which does have a premium.
People who are still employed beyond age 65, and who are covered by their employer’s insurance (together with their spouses), can elect to NOT sign up for Part B, thus avoiding paying the premium without incurring a late sign up penalty. If an employee retires or otherwise loses employer coverage, the employee (and his or her over 65 year-old spouse) MUST sign up for Medicare Part B within 63 days of losing coverage, even if the employee is offered COBRA benefits. Failure to do so incurs a Medicare penalty for late sign up that is both financially onerous and permanent.
When couples divorce, many times the divorce settlement requires one spouse to cover the other spouse under his or her health plan, but only until the non-working ex-spouse reaches age 65. At that time, the ex-spouse must sign up for Part B to avoid the Medicare penalty.
Many people who turn 65 and are not covered by a company sponsored retirement health plan can buy a Medicare Supplement (or Medigap) policy to make up for Medicare shortfalls. If a divorcing couple has a company (or government) sponsored retirement health plan (which essentially acts as a Medicare Supplement plan), the plan itself has its own rules about whether or not a divorced spouse can be covered, and whether it covers the surviving spouse or the surviving former spouse of the actual retiree. In the case of a divorcing couple covered by a company sponsored retirement health plan, you must get the details of who the plan will and will not cover from the company’s Human Resources department to determine its guidelines and policies.
Social Security and Medicare are just two of the many factors to be considered when divorcing later in life. In our next post, we will explore estate planning and options for dividing retirement accounts.