The Bipartisan Budget Act of 2015 (BBA) brought a major sting for many Boomers and Gen Xers who have yet to retire. (For most Millennials, like me, retirement is a dubious prospect anyway.) Section 831 of the BBA closed “unintended loopholes” in the Social Security Act. One of the most common loopholes was known as “file and suspend.” Explaining it is beyond my objective for this post (if you’re interested, here’s a pretty thorough treatment). In sum, it allowed something like a Social Security double-dip for married people and divorced couples who were married at least 10 years.
By closing the loophole, however, Congress has entangled ex-spouses with each other. To illustrate, consider Jamie and Chris, Boomers who just divorced after 40 years of marriage. Before the BBA’s passage, Jamie, a stay-at-home parent, could file for spousal benefits based on Chris’s work record once Chris turned 62—regardless of whether Chris was collecting benefits. After the BBA was passed, however, Jamie cannot file for the spousal benefit unless Chris is actively collecting benefits.
You can imagine how this might play out in a contentious split. Chris might delay collecting benefits for another five years . . . or might decide never to retire. Obviously, Jamie can file for benefits at age 62 based on her work record—but her benefits will be drastically less than what she would have received based on breadwinner-Chris’s work record.
The new rules can be problematic even when the former couple is still friendly. “It is a major hit to a couple where the older spouse is the non−income earner,” says ICLE contributor Liz Bransdorfer. To use our example, if Jamie is 66 but Chris is only 62, Chris might need to continue working another four years until full retirement age. Early retirement is not economically feasible for many people. But again, by delaying filing, Chris leaves Jamie with a diminished benefit.
Presently, there is a narrow exception to the new rules. A divorced person who has been divorced more than two years (and meets the other requirements for benefits) can still file a spousal benefit claim irrespective of whether the other spouse is collecting benefits. But clients who negotiated a divorce in 2014 or 2015 may be out of luck. Liz explains: “I am sure some people negotiated the term of their spousal support award based on the expectation that they would start to collect social security at age 62, and now they are not able to do that.”
Because of “unintended consequences” like those suffered by our protagonists, some speculate that Congress will pass ameliorative legislation. But until that time, practitioners need to be creative in their property settlement negotiations to offset these changes. (If you’re a member of the State Bar of Michigan, Family Law Section, be sure to check out ICLE contributor Joe Cunningham's article on this topic in the February Family Law Journal.)