If you’re part of a blended family (meaning you are married with children from a prior marriage), you’re no stranger to the extra planning it takes to keep your family’s life running smoothly. You’ve also probably given some thought to what you want to happen to your assets and your family if something happens to you. But have you considered retirement benefits for your spouse after you’re gone?

If you don’t create a plan for your assets before you die, state law has its own plan for your assets that might not reflect your wishes for your assets, especially your retirement assets. And if you’re in a blended family, this can have a significant financial impact on the ones you love and even create expensive, long-term conflict.

Let’s explore how the law affects retirement distributions for married couples. We’ll see why you need to be extra careful with your retirement planning if you’re in a blended family to ensure your retirement account assets go to the right people in the right amounts after you’re gone.

Be Aware of How ERISA Affects 401K Distributions at Retirement Age

If you’ve remarried, you and your new spouse have probably talked about updating the beneficiary designations on your retirement accounts to reflect your blended family arrangement. (If you haven’t talked about it, you need to talk about it ASAP).

Sometimes, people who are remarried decide to leave their retirement funds to their children from a prior marriage and leave other assets like their house and savings accounts to their current spouse. You may do this to avoid future conflict between your spouse and your children over your assets.

But even if you want to leave your retirement for just your children, if you’re married and your retirement account is a work-sponsored account, your children won’t inherit the entire account even if you name them as the sole beneficiaries.

That’s because the federal Employee Retirement Income Security Act (ERISA)governs most employer-sponsored pensions and retirement accounts. Under ERISA, if you’re married at the time of your death, your spouse is automatically entitled to receive 50 percent of the value of your employer-sponsored plan – even if your beneficiary designations say otherwise.

Understanding these benefits, including the retirement age benefit, is crucial for effective retirement planning to ensure you and your spouse maximize your entitlements.

The only time that your surviving spouse would not inherit half of your ERISA-governed retirement account is in these circumstances:

• Your spouse signs an official Spousal Waiver saying they are affirmatively waiving their right to inherit 50 percent of the account
• If the account beneficiary is a Trust of which your spouse is a primary beneficiary.

IRAs Have Different Rules Than 401Ks and Spousal Benefits

If you want your children to inherit more than 50 percent of your work-sponsored retirement benefits, and completing a Spousal Waiver isn’t an option, consider rolling the account into a personal IRA instead.

In contrast to 401(k)s and similar employer-sponsored plans, IRAs are controlled by state law instead of ERISA. That means that your spouse is not automatically entitled to any part of your IRA.

When you roll a 401(k) into an IRA, you gain the flexibility to name anyone you choose as the designated beneficiary, with or without your spouse’s consent. Rolling over a 401(k) into an IRA can also affect the accrual of delayed retirement credits and potentially increase your monthly payments.

On the other hand, if you want to ensure your spouse receives half of your retirement savings, make sure to include them as a 50 percent beneficiary or better yet, have your individual retirement account payout to a Trust instead.

With a Trust, you can:

• Document exactly how much of your retirement you want each of your loved ones to receive
• Control when they receive the funds outright
• Easily update and change the terms of your trust without having to remember to update your financial accounts.

Beneficiary Designations Always Trump Your Will for Social Security Benefits

Whether you have an employer-sponsored 401K or an IRA you manage yourself, there is one critical rule that everyone needs to know: beneficiary designations trump your Will and are crucial when you claim spousal benefits.

A Will is an important estate planning tool, but most people don’t know that beneficiary designations override whatever your Will says about a particular asset.

• For example, if your Will states that you want your retirement account to be passed on to your brother, but the beneficiary designation on the account says you want it to go to your sister, your sister will inherit the account, even though your Will says otherwise.
• Similarly, let’s imagine that you get divorced and as part of your divorce decree your ex-spouse agrees that they will not have any right to your retirement fund. However, after the divorce, you forget to take their name off of the beneficiary designation for the account. If you die before updating the beneficiary designation, your former spouse will inherit your retirement account.

If you forget to update your ERISA-controlled account and have remarried, your current spouse would receive half of the account and your former spouse would receive the other half.

That’s why it’s so important to work with an estate planning attorney who can make sure your accounts are set up with the proper beneficiary designations and ensure that your assets are passed on according to your wishes.

At The Law Offices of Jarrett R. McCartney, our team guides you through the retirement benefits process so you can rest assured your family is provided for and your wishes are respected. Call us at (231) 880-6914 or get in touch online today to schedule your consultation.

Eligibility Requirements for Spousal Benefits

To be eligible for spousal benefits, you must meet certain requirements.

• You need to be married to a worker who is receiving retirement or Social Security disability benefits.
• You must be at least 62 years old
• Your spouse is already receiving their retirement or disability benefits.

If you have enough Social Security credits to qualify for benefits on your own work record, or if you have your own small retirement benefit, you may still be eligible for spousal benefits.

If you are divorced, you might still qualify for spousal benefits under these specific conditions:

• You must have been married to your ex-spouse for at least 10 years
• You must be at least 62 years old
• Your ex-spouse must also be at least 62 and receiving retirement benefits

It’s crucial to note that the Social Security Administration (SSA) may not automatically know you are eligible for spousal benefits, so it’s important to check your eligibility proactively. This ensures you don’t miss out on benefits you are entitled to.

How Spousal Benefits Are Calculated

Spousal benefits are calculated based on your spouse’s benefit amount at their full retirement age.

The maximum spousal benefit you can receive is 50% of your spouse’s benefit at their full retirement age. However, if you choose to start receiving your spousal benefits before you reach your own full retirement age, your payment will be permanently reduced.

The Social Security Administration (SSA) uses a specific formula to determine your spousal benefit, taking into account your spouse’s benefit amount and your age at the time you start receiving benefits.

To get a clearer picture of how different retirement dates can affect your benefits, you can use the SSA’s Benefits for Spouses Calculator. This tool can help you make informed decisions about when to claim your spousal benefits.

Applying for Spousal Benefits

Applying for spousal benefits is a straightforward process. You can apply online through the SSA website, call the SSA at 1-800-772-1213 (TTY 1-800-325-0778), or visit your local SSA office in person.

When applying, you will need to provide certain documentation, such as:

• Your Social Security number
• Proof of age
• Proof of marriage or divorce

It’s generally recommended to apply for spousal benefits at the same time as your own retirement benefits. This way, the SSA can ensure you receive the higher amount between your own retirement benefit and the spousal benefit.

Special Situations and Spousal Benefits

There are special situations that may affect your spousal benefits. One such situation is the Government Pension Offset (GPO). If you receive a government pension, your spousal benefits may be reduced by two-thirds of the amount of your pension.

For same-sex couples, eligibility for spousal benefits can vary depending on the state, so it’s important to check the specific rules that apply to you. Similarly, domestic partners may also be eligible for spousal benefits, but again, the rules can vary by state.

Given these complexities, it’s essential to consult with the SSA to understand how these special situations might impact your spousal benefits. This ensures you receive the benefits you are entitled to without any unexpected reductions.

Survivor Benefits for Widows and Widowers

If your spouse has passed away, you may be eligible for survivor benefits. These benefits can provide up to 100% of your spouse’s benefit amount if you have reached full retirement age. If you are under full retirement age, your payment will be reduced accordingly.

To apply for survivor benefits, you will need to provide documentation such as your Social Security number, proof of age, and proof of marriage. You can apply online, by phone, or in person at your local SSA office.

It’s important to note that if you remarry, you may not be eligible for survivor benefits. However, if you are already receiving spousal benefits and your spouse dies, you may be eligible to transition to survivor benefits. This can provide a higher benefit amount, ensuring you have the financial support you need during a difficult time.

Work With An Attorney Who Ensures Your Assets Pass How You Want Through the Social Security Administration

Understanding how the law affects different types of assets is essential to creating an estate plan. But there’s more to it than just having a lawyer – you need an attorney who takes the time to really understand your family and your assets so they can design a custom plan that achieves your goals for your assets and your legacy. 

That’s why we help our clients create an inventory of all of their assets to ensure that every asset they hold is accounted for and passed on to their loved ones exactly as they want it to.

Making Sense of Retirement Planning for Blended Families

When planning for retirement in a blended family, we understand that managing the complexities can feel overwhelming. You’re not just thinking about your own financial future; you’re considering your spouse, children from previous marriages, and the possibility of ensuring everyone receives the right benefits.

At The Law Office of Jarrett R. McCartney, we guide you in structuring your retirement assets so your wishes are respected, whether it’s distributing your retirement benefits for your spouse or managing your other assets effectively.

Protecting Your Spouse’s Rights Under ERISA

Navigating the rules of ERISA can be confusing, especially if you wish to leave a larger portion of your retirement accounts to your children. In employer-sponsored plans, your spouse automatically becomes entitled to at least half of the account unless they sign a Spousal Waiver.

We help you assess whether you need this waiver and explore options for rolling over your 401(k) into an IRA, where you gain greater control over beneficiary designations and have more flexibility to pass on your assets as intended.

Using Trusts to Manage Retirement Accounts

Trusts are valuable tools for blended families because they allow you to designate exact amounts and timing for asset distribution. If you want to ensure that your spouse receives a portion while still providing for children from a previous marriage, we can help set up a trust that distributes your retirement benefits with precision.

A well-structured trust protects your spouse’s benefits while minimizing potential conflicts between your loved ones over retirement funds.

Maximizing Spousal Benefits Through Social Security

Understanding Social Security spousal benefits is crucial to maximizing your family’s financial security.

If your spouse plans to claim benefits based on your work history, there are strategies to ensure you receive the highest possible amount. For instance, waiting until full retirement age may allow your spouse to receive a larger benefit.

We walk you through these options to find the best strategy for your unique family situation.

Divorced Spouses and Social Security Benefits

If you or your spouse has an ex-spouse in the picture, it’s essential to understand how divorced spouses’ benefits may come into play. You may be eligible to collect benefits based on an ex-spouse’s work record if certain conditions are met, such as being married to your former spouse for at least 10 years.

We clarify how these rules interact with your existing plans, ensuring you’re not overlooking benefits you could claim.

Survivor Benefits: Providing for Your Loved Ones

If your spouse passes away, knowing how survivor benefits work helps secure your family’s financial future. Survivor benefits allow you to receive up to 100% of your spouse’s Social Security benefit at their normal retirement age.

If you’re managing early retirement plans or considering remarriage, we help navigate how these factors influence your eligibility to receive spousal benefits.

Crafting a Comprehensive Plan to Meet Your Goals

Estate planning is about more than legal documents; it’s about creating a holistic approach that reflects your wishes.

We take the time to understand your family dynamics, helping you create a plan that protects your spouse and children while accounting for specific rules related to Social Security benefits, ERISA, and retirement accounts.

Get in Touch to Protect Your Family’s Future

Let’s ensure your assets pass on exactly as you want them to. Get in touch with us at The Law Office of Jarrett R. McCartney to start planning today.

Our team guides you through the process so you can rest assured your family is provided for and your wishes are respected. Call us at (231) 880-6914 or get in touch online today to schedule your consultation.