Dividing Social Security at Divorce

Every working American knows what Social Security is, even if not all of its nuances. We pay 7.65% of the first $128,000/yr of our income (plus an employer match) for Social Security and Medicare, and in return, we receive monthly payments from the Social Security Administration upon reaching the appropriate retirement age (which for those born in 1960 or later, is 67 years-old).

Social Security Benefits for Divorced Spouses

Can a divorced spouse collect on her ex-husband’s Social Security? Yes, under these conditions:

1. The spouses were married for at least 10 years.
2. The former spouse seeking benefits is unmarried (and if the spouse remarried, that marriage has itself ended).
3. The former spouse is at least 62 years-old.
4. The spouses have been divorced for at least 2 years.
5. The employee spouse is eligible for Social Security or Social Security Disability, and
6. The former spouse’s own entitlement to Social Security benefits would be less than that spouse’s entitlement to a share of the employee spouse’s benefits.

20 C.F.R. § 404.331.

Note that employee spouse’s benefits are not being divided: the former spouse’s payment is an additional payment, not taken from the employee spouse’s benefits.

With a 10-year marriage, the former spouse is also eligible for Social Security survivor benefits, providing he/she did not remarry while under the age of 60 (or 50, if disabled).

Social Security is Not Divisible Asset in Divorce

The funds paid into Social Security during marriage are marital, however the resulting Social Security benefits are not a marital asset!

The “anti-alienation” provision, codified at 42 U.S. Code § 407(a), provides that Social Security benefits are not divisible by state courts. In fact, that statute makes Social Security largely untouchable, other than taxes, student loans, or to garnish child support or alimony:

“The right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.”

Colorado has similarly held that Social Security benefits are not divisible in a divorce, but they are an economic circumstance that may be considered for purposes of coming up with an equitable settlement. In re: Marriage of Simon, 856 P.2d 47, 51 (Colo. App. 1993).

Even if not divisible, Social Security benefits cannot be treated as property and offset against other assets. The trial court in In re: Marriage of Morehouse, 121 P.3d 264 (Colo. App. 2005) put a value on the husband’s right to receive Social Security benefits, and awarded the wife extra marital property to compensate her for the husband's anticipated Social Security benefits.

By awarding the exact present value of the Social Security benefits, the court went beyond treating Social Security as an economic circumstance, and had improperly treated Social Security as a marital asset:

“There is an obvious tension between a trial court's duty to achieve a just resolution under state law and the strictures of the anti-assignment clause. Courts may fail to achieve just results if they must ignore one party's Social Security benefits, especially when the other party's pension will be treated as marital property. But courts cannot circumvent the anti-assignment clause by distributing property so as to compensate for the value of exempt benefits.” Morehouse at 266.

Morehouse did not prohibit Colorado divorce courts from considering Social Security benefits entirely. On the contrary, the court even suggested a way to treat the benefits properly as an economic circumstance may be by awarding the other spouse a greater share of the marital estate:

“Thus, while a trial court may not distribute marital property to offset the computed value of Social Security benefits, it may premise an unequal distribution of property - using, for example, a 60-40 formula instead of 50-50 - on the fact that one party is more likely to enjoy a secure retirement. We will not presume that an unequal distribution reflects an impermissible offset of Social Security benefits, especially when the distribution is justified by a combination of factors.”

Morehouse, 121 P.3d 267. The teaching point? A dollar-for-dollar offset is tantamount to a division and subject to reversal, but otherwise the trial judge has broad discretion to fashion an equitable division of the remainder of the marital estate, considering the benefits.

Because Social Security is not divisible, payments received and deposited in a bank account are also not divisible - unless they have been commingled with marital funds, in which case they become marital. In re: Marriage of Green, 169 P.3d 202 (Colo. App. 2007).

Division of Social Security by Agreement

Even though a court cannot divide Social Security benefits at divorce, can the spouses themselves voluntarily agree to divide the payments in a separation agreement? No.

The U.S. Supreme Court held that even with a signed agreement, Social Security benefits are not assignable. Philpott v. Essex County Welfare Board, 409 U.S. 413 (1973). And there is no exception for a dissolution of marriage. In In re: Marriage of Anderson, 252 P.3d 490 (Colo. App. 2010), the parties signed a separation agreement under which the husband agreed to divide his Social Security with his wife, paying her $225/mo plus COLAs.

Years later, the husband filed a motion to set aside the payment of Social Security provision on the grounds that it violated federal law. The wife argued he was not dividing his benefits, but, rather, once husband received them he was free to do with them what he chose, and he chose to divide them with her. The trial court rejected her arguments, and further held that the parties cannot agree to violate federal law by assigning Social Security benefits:

“Although we are sympathetic to wife's position here, we agree with those cases holding that state law equitable estoppel principles cannot be applied to bar a party from challenging a judgment rendered void by the Supremacy Clause. To apply such principles in that context would itself violate the Supremacy Clause.”

Anderson, 252 P.3d at 496. In recognition of the fact that setting aside just the Social Security division may result in an inequitable property division, the court of appeals set aside the entire separation agreement, directing the trial court to fashion an equitable division in view of the Social Security not being divisible.

Offset PERA Division by Social Security?

Colorado has largely opted out of Social Security for many of its employees, and instead its public employees participate in the Public Employees Retirement Association, or PERA. PERA is a defined benefit pension plan whereby employees have 8% of their salary deducted (increasing to 10% by July 2021), and there is an employer match. Upon retirement, public employees receive a monthly payment based upon their years of service and pay at the time of retirement.

Non-state employees contribute 7.65% of their salary (which are marital funds) into both Social Security and Medicaid, and in return, receive a monthly stipend which is not divisible in a divorce. But Colorado public employees contribute a comparable amount, and in the event of divorce, the PERA is a divisible asset. Consider the effects of two spouses, each earning exactly $100,000 per year. The husband, a state employee, contributes $8000/yr of marital funds into PERA, and the husband receives half of the value upon divorce. The wife, by contrast, works for a private employer and contributes $7650/yr of marital funds into Social Security, and upon divorce, the wife receives none of that.

Would it not be fairer to simply offset the two? One spouse tried to argue that very point in a dissolution of marriage case, that the marital portion of his PERA should be reduced by the value of the wife’s Social Security, which the court could not divide. In re: Marriage of James, 950 P.2d 624, 628 (Colo. App. 1997). The Court of Appeals rejected that argument:

“we conclude that anticipated Social Security retirement benefits cannot be distributed or used as an offset in division of marital property, and to do so would violate the Supremacy Clause of the United States Constitution. [Citations omitted].

Thus, it follows that lack of Social Security benefits should not be considered in determining the value of the marital portion of husband's pension. [Citations Omitted] If Social Security cannot be considered a marital asset, then the lack of Social Security should not be considered in reduction of marital assets.” (Emphasis added).

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