The Social Security Administration (SSA) recently announced changes affecting retirees’ Social Security benefits, particularly for divorced individuals or those undergoing divorce. This new rule allows Social Security benefits to be calculated as income for spousal support, altering the financial landscape for many retirees. Let’s look into how these changes will impact alimony and retirees’ Social Security benefits.
Alimony Overview
Alimony, also known as spousal support or maintenance, is a legally binding agreement for financial support between spouses after separation or divorce. Alimony can be temporary or permanent and is designed to help the lower-earning spouse maintain financial stability. The court determines alimony based on various factors, including the marriage’s length, each spouse’s financial situation, and the earning potential of each party.
State Laws on Alimony
Alimony laws vary by state, but most states have general guidelines on how alimony is applied and handled by courts. Typically, alimony is requested in the divorce petition or dissolution form, which is the initial document filed for divorce. Spousal support cases often involve divorced spouses, although separated married couples can also file for alimony. Alimony can be decided through a settlement agreement, mediation, or court judgment.
Temporary vs. Permanent Alimony
Temporary alimony is awarded to provide immediate financial support to the non-moneyed spouse during the divorce process. This support is usually granted after settling disputes related to child support, child custody, and property division. Temporary alimony aims to assist the lower-earning spouse until a permanent arrangement is established in the divorce decree.
Permanent alimony, on the other hand, is awarded to compensate for the diminished earning capacity or net worth of one spouse due to the marriage’s conditions. Often, one partner pursues a career while the other takes on responsibilities like childcare and housework, leading to significant wage differentials.
Social Security Benefits
Historically, Social Security benefits were considered neither assignable nor transferable under federal statutes. However, new legislation requires that Social Security benefits be counted as income when calculating alimony. Judge David H. Yun clarifies that judges may consider Social Security retirement benefits and other non-assignable federal benefits in determining alimony or child support, even if the decision indirectly assigns such benefits.
Impact on Retirees
The new rule allowing Social Security benefits to be used for alimony calculations has sparked debate among financial experts. Kevin Thompson, founder and CEO of 9i Capital Group, notes that many seniors’ primary concerns revolve around maintaining their retirement benefits. According to the SSA, an ex-spouse may be eligible for benefits on the retiree’s record if the marriage lasted at least ten years before the divorce. This eligibility could reduce the retiree’s benefits if their ex-spouse claims a portion of their Social Security spousal benefit.
Alex Beene, another financial expert, explains that even if there is a significant income disparity between former spouses, the alimony amount may be reduced due to the inclusion of Social Security benefits in the monthly income calculation. This change could significantly impact divorce settlements, requiring couples to carefully consider how alimony calculations will affect their monthly benefits.
Financial Experts’ Concerns
Financial experts are divided on the potential negative impact on seniors. Some believe that the new rule could harm retirees by reducing their Social Security benefits, while others argue it provides a fairer calculation of spousal support. Couples approaching divorce must know how these changes will affect their financial situation and consider strategies to protect their retirement benefits.
The SSA’s new rule on calculating Social Security benefits as income for alimony marks a significant shift in how spousal support is determined. While it aims to provide a more accurate assessment of financial support needs, it also raises concerns among retirees about the potential reduction in their benefits. As this change takes effect, divorced individuals and those considering divorce should stay informed and seek professional advice to navigate the new financial landscape.
FAQs
How does the new SSA rule affect alimony?
It includes Social Security benefits as income for alimony calculations.
Who is eligible for Social Security benefits on an ex-spouse’s record?
Ex-spouses married for at least ten years before divorce.
What is temporary alimony?
Short-term financial support during the divorce process.
Can Social Security benefits reduce alimony?
Yes, they may lower the alimony amount by being counted as income.
Are financial experts in agreement about the new rule?
No, opinions are divided on its impact on retirees.