Monday, January 19, 2015

Divorce Affects Benefits and Inheritance

Q:       When my husband and I divorce, will my Social Security benefits be affected?
A:        No. Under federal law, you qualify for Social Security benefits in one of two ways: by 1) earning credits, based on your annual earnings, which determine your monthly benefits when you retire; or by 2) being married to someone for more than 10 years, which qualifies you for a spousal benefit.
When you retire, you may choose whichever of these Social Security options provides you with the greatest benefit: 1) your earned credits into the system, 2) your current spouse’s spousal benefit or 3) the highest spousal benefit from a former spouse of a marriage that lasted more than 10 years.
            Some people have had more than one former marriage, each lasting more than 10 years. Let’s say you are a high wage-earner and have two former spouses from marriages lasting more than ten years each. Even if both of your former spouses claim and receive spousal benefits from your Social Security, it will not affect the amount of benefits you will receive. 

Q:       I’ve been receiving health insurance coverage through my wife’s work policy. Will my family health benefits lapse when we divorce?
A:        As a matter of strict law, family plan medical coverage terminates on the date of a “qualifying event,” which, in your case, would be the date of your divorce or dissolution of marriage. Federal law requires that, within 30 days of the termination of your benefits, your wife’s employer must notify you about the termination and inform you about COBRA coverage, if that coverage applies. (COBRA coverage allows workers and their families who lose their health benefits the right to continue to receive benefits provided by their group plan for a limited amount of time. If you qualify for a COBRA policy, you may be entitled to a maximum of 36 months of additional coverage. However, COBRA plans are expensive.)
            As a practical matter, most insurance companies will maintain your coverage through the end of the month of the final divorce hearing. Also, to avoid any lapses in coverage, any health insurance policy you may buy after your divorce will be retroactive, which means that it will cover you from the date that your family coverage was terminated.

Q:       How do I receive pension benefits from my soon-to-be-ex spouse?
A:        You and your spouse can divide pension benefits as a term of your divorce or dissolution of marriage. If your spouse’s pension plans are not “qualified” and are not protected by the federal Employee Retirement Income Security Act (ERISA), then they may be divided through a trustee-to-trustee transfer. This is just an administrative division that the appropriate financial professional can handle.
            However, most pensions, such as 401(k), 403(b) and some other defined benefit pension plans, are protected by ERISA. If your spouse’s pension benefits are protected, then the benefit must be divided through a “qualified domestic relations order” (QDRO).  The QDRO is a court order that allocates the retirement asset between the person who earned the benefit (the “plan participant” – your former spouse) and the “alternate participant” (you).  When your pension benefits are allocated, it is a non-taxable event. As long as you keep your share of the retirement in a qualified (retirement) account such as an IRA account, it will continue to grow as a tax free retirement account.
Q:       If I die in the middle of the divorce, who inherits my estate?
A:        The answer depends on whether you and your spouse signed a separation agreement before your death, and whether there is language in the separation agreement stating that the agreement will be binding if there is no final divorce decree. If you and your spouse have waived the surviving spouse rights in the separation agreement, which is almost always done, AND the agreement is binding in the absence of a final divorce decree, then whatever you and your spouse agreed to in the separation agreement can be enforced. If you and your spouse did not sign a separation agreement, then all spousal rights apply. 

This “Law You Can Use” article was provided by the Ohio State Bar Association. It was prepared by Cleveland attorney Manav (Manu) H. Raj, Esq. of Rieth Antonelli & Raj. Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

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