Courts struggle with the question of how Social Security benefits should be treated in equitable distribution. Here are a few critical issues to consider.
By Theodore K. Long, Jr., Pension Analyst
According to Federal statute, Social Security benefits are not divisible in divorce proceedings, and therefore cannot be considered a marital asset subject to distribution. However, federal law does not prohibit the division of pension benefits that are received in lieu of Social Security. And in some jurisdictions, courts consider Social Security when dividing other assets.
Social Security is the federal government’s version of a defined benefit pension plan. Many government employees contribute to their government pension plans but not to Social Security; for these employees, a portion of their pensions constitutes a replacement for Social Security. The benefits payable under these governmental plans could be described as being made up of two parts: actual pension and the “hypothetical” Social Security. A pension substituting for Social Security may be treated as marital property and distributed upon divorce.
Actuarial Analysis with Social Security Offset
When calculating the spousal portion of a defined benefit pension plan, you must reduce the benefits to present value – which is used to determine an appropriate credit under an immediate offset division of assets. A Social Security offset reduces the value of pension benefits subject to equitable distribution based upon hypothetical or actual Social Security benefits.
When government employees don’t pay Social Security taxes, it will reduce the Social Security benefits available to themselves as well as their spouses or widow(er)s. In this situation, the government applies one of two basic offsets:
1.The Government Pension Offset (GPO). The GPO affects Social Security spouse’s or widow(er)’s benefits. A person receiving a government pension in lieu of Social Security loses two dollars of his or her spouse’s or widow(er)’s benefit for every three dollars of the government pension he or she receives. For example, for a monthly civil service pension of $600, two-thirds of that ($400) must be deducted from the spouse’s or widow(er)’s benefits. The reduction is based on the worker’s benefit but applied to the spouse’s or widow(er)’s benefit. For example, if someone is eligible for a $500 spouse’s or widow(er)’s benefit from Social Security, he or she will receive $100 a month ($500 minus $400). If someone takes their government pension annuity in a lump sum, Social Security still calculates the reduction as if they chose to receive monthly benefit payments. The GPO ensures that Social Security benefits of government employees who don’t pay Social Security taxes are calculated the same as workers in the private sector who pay Social Security taxes.
2. The Windfall Elimination Provision (WEP). The WEP affects the benefits of workers who earned a pension from an employer who does not withhold Social Security taxes and who also qualify for Social Security from other, covered employment. The reduction could be up to one-half of the worker’s benefit, but it does not apply to survivor benefits.
The Remarriage Penalty
Widow(er)s or divorced widow(er)s cannot receive Social Security benefits if they remarry before age 60, or before age 50 if they are disabled. Benefits from a former spouse generally end if a divorced spouse remarries – however, they could receive benefits from their new spouse (although it could be considerably less than the widows benefit). If someone over 60 is receiving a widow(er)’s benefit, they will continue to get that benefit even if they remarry.
Theodore K. Long, Jr. is a nationally recognized expert in all issues relevant to valuing and dividing retirement benefits in divorce. He is the founder and president of Pension Appraisers, Inc., which has served family law attorneys and their clients nationally since 1989. www.pensionappraisers.com & www.QdroDesk.com
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