co-parenting

Navigating College Costs in Divorce

June 5, 2023 By Denise French, CVA, MAFF, CDFA, CRPC

It’s the time of year when graduating high school seniors are looking forward to going off to college. Many spend the summer planning their dorm décor and worrying about roommates while parents plan for footing the bill. Negotiating college costs as co-parents can be stressful for the parents and the children if there is animosity. Presented herein are several ideas to address higher education costs for children with divorced or divorcing parents.

Start Saving Early

A 529 Education Savings Plan can be tremendously helpful by allowing you to fund a child’s college savings account allowing it to grow over time. The money in a 529 plan grows on a tax-deferred basis until it is withdrawn. If the money is used for qualified education expenses as defined by the IRS, those withdrawals won’t be subject to either state or federal taxes. The current IRS rules on qualified education expenses are fairly broad and roomy to include not only tuition but also room and board, food plans, necessary college items such as required books and electronics as well as costs to start a business in your field of study while in school. They also include many trade or vocational schools.

Since a 529 education fund is a custodial account only one parent can be the owner. The child is the beneficiary. The other parent can be a successor owner, meaning if the original owner passes away the other parent automatically becomes the owner. We recommend this with divorcing parents. Even though only one person can own the 529 plan, it is common in our experience for the other parent to receive statements at their request or have log in information so they can view the account. We also suggest you dictate in the decree what the funds will be used for and keep the definition close to what the IRS allows as the laws can change. For example, language which states these funds will be used first and to the fullest extent allowable under IRS laws for all eligible higher education related costs for the child of this marriage. Also ask your attorney about language which states these funds are ONLY to be used for higher education (or other qualified education costs up to grade 12) for the children of this marriage – and for no other purpose or persons.

We have also seen it mandated that one parent or both parents contribute over the years to their child’s 529 plan. The amounts and parent, or parents to contribute have been varied and dependent on their willingness to help their children with college, state this in a divorce decree and their ability to do so. If this is a choice you make, it can be written into the decree or decided informally without the decree. This is a discussion to have with your attorney.

What happens if your child doesn’t use all of the 529 funds? We suggest writing a solution to this dilemma in your decree. You have options if your child does not use all the funds set aside in a 529 plan for their education. You can return the monies to the parents or redeem the funds and give cash to your children. Both of these options involve a 10% penalty and taxation on the earnings portion (not the principal, only the earnings). Another option is to transfer the funds to another beneficiary or person to use the education funds. With a 529 plan, you’re allowed to change the beneficiary at any time to one of your beneficiary’s eligible relatives. Examples of eligible relatives include siblings and step siblings, parents, cousins, aunts and uncles, and in-laws. Spouses of these family members are often considered eligible beneficiaries as well. Again, we recommend writing in your decree that these funds will be used only for children of your marriage. Another option is to roll the 529 funds into a ROTH IRA for the beneficiary over time. The Secure Act 2.0, which was signed into law on December 29, 2022, allows 529 college savings plan funds (up to a $35,000 lifetime limit) to roll into a Roth IRA for the 529 beneficiary penalty and tax free. The 529 account must have been opened for at least 15 years and the funds must be moved to a Roth IRA in the name of the 529 beneficiary. The annual rollover limit is pegged to the yearly IRA contribution limit, which includes contributions made to any IRA. In addition, the amount rolled over plus annual IRA contributions cannot exceed the designated beneficiary’s earned income for the year. The IRS will likely clarify this process in more detail but as it stands this could be a helpful tax and financial planning tool.

No Savings Plan

If your child is nearing college age and you have not saved over the years, don’t worry. There are other options. Try having a civil conversation with their other parent. This may help tremendously (or not but at least you tried!) Community college for the first two years can significantly cut costs down for your child’s overall education. Your child can live at home with you to save costs and go to a program such as Lone Star College for 2 years at a substantially reduced rate compared to a 4-year university. They can work part time potentially to help pay for their car, gas, and other needs. Third, look to FAFSA or Free Application for Federal Student Aid. This is almost mandatory in today’s age. Entering your child into the FAFSA program enables them to receive grants or loans. We encourage all seniors in high school to contact the school they wish to attend and talk to the financial aid office. They have experts at each school who can help you successfully navigate the FAFSA program and discuss how to work the system for divorced parents. If you are a low-income parent, you may have free monies which you do not have to repay available for your child. Talk to someone in the financial aid office and become educated on navigating FAFSA.

At Divorce Strategies Group we understand how difficult divorce can be. From financial mediation to financial planning, we can help take the fight out of your future. Call us or click here for a complimentary consultation.

Taxes & Children: What Divorcing Parents Need to Know

May 16, 2023 By Denise French, CVA, MAFF, CDFA, CRPC

Taxes can be a major concern for parents. The ability to claim children as dependents can potentially affect the amount of taxes a single parent will be refunded or pay. Here’s what you need to know about claiming children on your taxes when divorced and the child tax credit. This article does not address the potential Earned Income Tax Credit.

Claiming Children on Taxes & Child Tax Credits

If you are not married on 12/31, your filing status must be either “Single” or “Head of Household”. Head of Household status is reserved for those persons who have a qualifying child, and they pay more than ½ of the cost of keeping up the main home where that child resided for more the ½ of the year. There are two components of claiming children on taxes. First, who claims Head of Household status. Second, who can claim credits for children under current tax law. These are two different issues.

Let’s address the first – claiming Head of Household or Single status on your taxes. If you paid more than ½ of the cost of keeping up a home where your child lived (spent the most nights) more than ½ of the year, then you are the parent who has the right to claim the child. If you are unmarried that would be the Head of Household status. If you split custody 50/50 and you cannot agree with the other parent, then the highest earning parent can claim the status.

We are often asked if the couple has two children, can’t both parents claim, “Head of Household” and each take 1 child. The answer is yes – depending on the circumstance. Both parents would need to maintain a separate home and have at least one child living with them for more than 50% of the year (more nights). This is not customary with smaller children. As such, if both of your children spend more nights with one parent during a tax year, that parent, only, has earned and can claim Head of Household status.

As Head of Household, you can pay less tax with equal dollars than the filing status Single. The brackets for 2023 are below:

2023 Single Filer Tax Brackets

If taxable income is: The tax due is:

Not over $11,000 10% of taxable income

Over $11,000 but not over $44,725 $1,100 plus 12% of the excess over $11,000

Over $44,725 but not over $95,375 $5,147 plus 22% of the excess over $44,725

Over $95,375 but not over $182,100 $16,290 plus 24% of the excess over $95,375

Over $182,100 but not over $231,250 $37,104 plus 32% of the excess over $182,100

Over $231,250 but not over $578,125 $52,832 plus 35% of the excess over $231,250

Over $578,125 $174,238.25 plus 37% of the excess over $578,125

2023 Head of Household Tax Brackets

If taxable income is: The tax due is:

Not over $15,700 10% of taxable income

Over $15,700 but not over $59,850 $1,570 plus 12% of the excess over $15,700

Over $59,850 but not over $95,350 $6,868 plus 22% of the excess over $59,850

Over $95,350 but not over $182,100 $14,678 plus 24% of the excess over $95,350

Over $182,100 but not over $231,250 $35,498 plus 32% of the excess over $182,100

Over $231,250 but not over $578,100 $51,226 plus 35% of the excess over $231,250

Over $578,100 $172,623.50 plus 37% of the excess over $578,100

In addition to the extended tax brackets, the Head of Household status has a higher standard deduction than Single status. For 2023, the standard deduction for Head of Household is $20,800 while the standard deduction for Single is $13,850. These amounts are what you deduct (unless you are itemizing deductions which are higher than the standard deduction) from your income for calculating taxes.

The second part of having a child on your tax return is the Child Tax Credit. The Child Tax Credit follows the child. The custodial parent (where the child lived more than 50% of the time) is the default person to claim the credit. This credit has limits. It is a partially refundable credit. You must have at least $2,500.00 of earned income to claim the refundable part of the credit and it is completely phased out for individuals earning more than $200,000.00. For divorcing parents, this can be moved from one parent to the other with the use of Form 8332. If you have just one child together, for example, you could agree to alternate years claiming the child tax credit on your respective returns. If you have multiple children, you might decide to divide them between the two of you. This way both parents can take advantage of the tax credit. Don’t forget that age matters. If you have a 10-year-old and a 5-year-old, the 5-year-old can be claimed for a much longer period of time. Whatever the two of you decide, it is important that parents formalize the agreement in their decree and follow this up with a Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. This form can be used for the current or future tax years.

Who Qualifies for the Child Tax Credit?

You can claim the Child Tax Credit of $2,000 for each qualifying child who has a Social Security number that is valid for employment in the United States. To be a qualifying child for the 2023 tax year, your dependent generally must:

Be under age 17 at the end of the year
Be your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these (for example, a grandchild, niece or nephew)
Provide no more than half of their own financial support during the year
Have lived with you for more than half the year
Be properly claimed as your dependent on your tax return
Not file a joint return with their spouse for the tax year or file it only to claim a refund of withheld income tax or estimated tax paid
Have been a U.S. citizen, U.S. national or U.S. resident alien

You qualify for the full amount of the Child Tax Credit for each qualifying child if you meet all eligibility factors and your annual income is not more than $200,000 ($400,000 if filing a joint return). Parents and guardians with higher incomes may be eligible to claim partial credit. Also, dependents over the age of 17 could qualify for a $500 credit if certain conditions apply.

It is critical to consult with a tax advisor (licensed CPA or EA) who is familiar with tax claiming issues surrounding divorce. As an example of what can go wrong, read this article from Iowa State University dealing with a couple who thought they had the situation handled but the IRS disagreed, and the claim was disallowed. Keep in mind, the IRS and taxes follow federal laws and those as far as federal taxes are concerned, supersede your state divorce decree.

Where do you go from here?

At Divorce Strategies Group we help parents walk through the tax ramifications of who can claim which credit for children when parents divorce. We can also help with general financial guidance in the divorce whether you are an individual looking for guidance or a couple seeking neutral financial services to help get though the divorce in a more amicable fashion. Schedule your complimentary consultation today.

Why Choose Mediation Instead of Court?

January 10, 2023 By Denise French, CVA, MAFF, CDFA, CRPC

A mediator is a completely neutral third-party expert who assists the parties in coming to their own resolution to a dispute. An effective mediator will have experience both with the process of mediation itself as well as with the specific issues involved in your case.

Why would you choose to use mediation when you could instead use the traditional litigation process for your divorce? There are numerous advantages of mediation over court, and not all of them are obvious at first glance:

(1) Mediation is quicker. Court dates are often postponed or could be inconvenient for the parties involved. In mediation, you get to schedule the time the mediation session occurs, and the process can move much faster than a traditional litigated divorce. At Divorce Strategies Group our mediation process is usually complete within 60-70 days.

(2) In court the judge’s decision is binding. Contrasting, in mediation, you have a say in the outcome and nothing gets decided without your consent. At the end of mediation if an agreement is reached, a Mediated Settlement Agreement (MSA) can be signed which is binding upon the parties. Each party agrees to the conditions and signs voluntarily.

(3) Mediation is typically much cheaper than court. At DSG we charge a flat fee for mediation services and the attorneys we coordinate with typically charge lower rates than they would with traditional litigation. While each party will have competent counsel at DSG in our mediation process, the overall time required by the attorneys in our mediation process is less and therefore the fees are typically less.

(4) Court involves “discovery” procedures where each party forces the other to make information available in advance of the court hearing. Mediation can involve more reasonable and limited information sharing. At DSG, unless otherwise requested, we only ask for what is in the estate currently. In contrast, in litigation often years of statements are requested and then must be reviewed, which takes time and costs money.

(5) You can research potential mediators and select one who has a specific skillset and style that appeals to you. Some mediators are facilitators while others will suggest solutions.

(6) Since the other side has agreed to mediate with you and helps create the settlement, they are more likely to comply with the agreed settlement terms after mediation.

(7) Parents can draft agreements which work for their children instead of following the traditional, cookie-cutter plans of the court system. In our mediation process at DSG, each party discusses their needs and wishes for the children with a family law attorney who then helps the parties craft agreements which both follow the law and fit the family’s needs.

What are the next steps? Schedule a complimentary 30 minute consultation with Divorce Strategies Group to discuss mediation and what options in general may be best for your family.

New Year New You: Three Resolutions Worth Making

December 26, 2022 By Melissa Provence, CDC, DCC

Starting over can seem impossible after divorce. We may have lost who we are, had our future erased, or felt hopeless. The direction of our lives was now completely different. A roadmap once dotted with destinations, now leads to someplace different. Now is the time to recapture and invent your new path. Here are three ways to reclaim and thrive in 2023. Let’s raise a glass and toast to new beginnings!

Rediscover Who You Are:

It can seem impossible to make a fresh start. We don’t know who we are as single adults. This new life can seem overwhelming and scary. Venturing into the unknown can feel like jumping into the abyss. I remember after my own divorce – I had no idea who I was as a single woman. My identity for years was “so and so’s wife”. As the years passed, I slowly lost who I was to who I was supposed to be in the eyes of my ex-husband and those he associated with him. Gaining a title meant losing myself. What I came to realize post-divorce was that there was more to me that being “Mrs. so and so”.

My strategy for doing this was to remind myself who I was prior to marriage and what I wanted for myself. I spent time reflecting on what I loved about myself prior to becoming a wife and cutting out the things that I had been told I needed to let go of once a ring was placed upon my finger. I revisited the times I had thought to myself, “ I wish he could see who I really am”. I had packed away all of the things I treasured most about myself and stuffed that sadness into a secret space within myself.

I made a new vow to myself instead of another person. It was time to rewrite my future. No more compromising my value as a person for the sake of someone else’s expectations. This realization that I could do anything as a single woman, as long as it didn’t conflict with the standards, I set for myself or affect the kind of mother I was. It was incredibly freeing.

I wanted to be a valuable member in the work force. That may not be everyone’s dream, but that was mine. I wanted to garnish a good paycheck and do something that made me feel good about myself and helped others. That is exactly what I found – and then some.

Look Forward to Life

I love to travel and have found that having a trip on the horizon boosts my spirits. It gives me something to be excited about. I may be feeling down or overwhelmed but I can always think about what’s to come and it keeps me moving forward. What do you love to do? Can you use those passions to drive you forward?

Part of the healing process in divorce is to highlight your life with things you love. Self-care is incredibly important during this time period. It can be small things like a good bubble bath and a book, new haircut, having your nails done, or even treating yourself to a nice dinner out with friends. It can also be really big things like moving into a new home, finding a job you’re passionate about, or traveling somewhere you’ve longed to explore all your life.

The world is your oyster! Get excited! Treat yourself to imaging your best life and taking steps to achieve the future you deserve.

Good Grief

Science has proven our brain chemistry is changed during this grieving process. We call it “divorce brain” and it’s very real. You may feel forgetful, overwhelmed, and stuck. Know that this grieving process is very similar to the death of a loved one. While you won’t ever forget this chapter in life, you can move past it.

One of the best and healthiest ways to do this is through the help of a mental health professional. Friends and family are great to vent to but can’t always give you the best advice. Their love for you and anger towards your ex creates a bias that doesn’t always work in your fav

A Divorce Coach is also a wonderful avenue. We can be used in conjunction with a therapist or by ourselves. Divorce Coaches create a safe, judgment free space for you to express all of your thoughts and emotions and help you come up with a plan to guide you through them one step at a time. Divorce coaches are not mental health professionals. We walk client’s step by step through the recovery process and onto a new path that they can be excited about. As a divorce coach, my goal with every client is to address emotion or aspects of life where they feel stuck and lead them into self-discovery.

Make 2023 a defining year in your life. Reinvent who you are and connect with who you were before. Create goals and moments that can inspire you to keep moving forward. Enlist the help of a therapist or counselor to support you in your recovery.

Divorce Strategies Group offers mediation, divorce financial planning, and divorce coaching. If you’re curious about Divorce Coaching and how it can play a part in the healing process, give us a call. We offer complimentary Discovery Session’s to answer questions and briefly touch on topics that are important to you.

Health Plans – Open Enrollment & Divorce

October 18, 2020 By Denise French, CVA, MAFF, CDFA, CRPC

If you work for a company which offers health insurance you probably already know about open enrollment. Updates you choose during this time period will determine your health, dental and vision insurance for the upcoming year and your tax savings in deductible plans like Health Savings Accounts (HSA’s). While the timing of open enrollment can vary with different employers, open enrollment is generally the period between November and mid-December. During this time you are able to make changes to your health insurance plans without a major life change. You can choose to renew your participation in your company’s current insurance plans, switch to a different one, and make changes to participants on your plan for the upcoming year. Even though it can be tempting to select the plan you had last year so you don’t have to put in much effort, I’d encourage you to pause for a moment and consider if that’s really the best option from a benefits, tax, and budgetary viewpoint.

It Is important to remember if you are still in the midst of divorce, you will likely need to add your current spouse on your health coverage during open enrollment elections for the new year. If you are under temporary orders (which you likely are) do NOT remove your current spouse from your health coverage right now for the next year. You can remove your spouse from your health insurance coverage in the new year after your divorce is final as that will count as a major life change.

While you will keep your spouse on your current coverage, it’s important to look at your coverage options and make sure you have the right one for you. After you divorce is final in the new year (or the end of this year), you will remove your spouse from your coverage and this will be your plan for the rest of the year. Are the deductibles proper for you? Are you eligible and participating in the HSA? Is this the right plan considering minor children you will have on your plan? This and other issues are important to consider.

1. Evaluate Life Changes

The amount of coverage you need plays a big role here, especially if you previously covered dependents and/or your spouse and no longer need to or vice versa. Some other life changes in addition to divorce could make a difference in the plan you choose during open enrollment include births, deaths and medical issues.

2. Review Beneficiaries

Open enrollment time is a good opportunity to revisit the beneficiaries on your accounts. For example, if you have group life insurance, you may still have your ex-spouse as the beneficiary. Once the divorce is final you will need to remove your ex-spouse from the beneficiary designation unless you want your ex-spouse to be the beneficiary, and in that case you will need to re-assign that person as the beneficiary after the divorce is final. Your ex-spouse will be skipped over on a life insurance policy payout unless they are specifically designated in a divorce decree and/or you rename them as beneficiary on the policy after the divorce is final.

We encourage you NOT to list minor children as beneficiaries on an anything. Minor’s cannot receive payouts without a court appearance and a guardian. Guess who will be the guardian for your children if you pass while they are minors? It will be your co-parent or ex-spouse unless they predecease you. If you want to leave the proceeds to your children you will want to create a testamentary trust (included in your will usually and what I have personally) or a revocable or an irrevocable trust. All of these involve a trip to an estate planning attorneys office which we highly recommend after the divorce is final.

For now, while the divorce is still pending, list your spouse as beneficiary. You are likely under temporary orders to do so. After the divorce is final it’s time to do some estate planning and likely change the beneficiary.

3. Understand the Benefits of the Plans You Select versus Your Needs

This is a great time to make sure you’re getting the coverage you need and you’re maxing out the tax savings from it. Take the time to review what’s included in your plans, any tax credits or benefits you’re eligible for, and options outside of your employer-provided plans. That way, you know you’ll actually use everything you’re paying for. The reality is, it comes down to saving money and being tax-efficient, especially with an HSA.

Another big issue we see with divorcing couples is the deductible and the corresponding out of pocket costs. You may have a fight on your hands (and undue stress from such a fight for you and your children) if your spouse is living paycheck to paycheck and you opt for a plan with a huge deductible. Paying hundreds of dollars to meet the deductible for a simple sick visit to the pediatrician may not go well for an ex-spouse on a limited income or at least be an issue to address while you are in divorce proceedings. Conversely, if there is a large surgery to pay for or a medical issue to be dealt with which is known for the upcoming year, it’s wise to perform a cost analysis on how much it will cost you to have this covered at a higher percent even with a large deductible versus a lower percent of coverage with a lower deductible.

Medical costs can be an enormous part of the annual budget. The good news is you have coverage and choices, the bad news is sometimes those choices, especially in the midst of a divorce, can be overwhelming. To make sure you’re getting the biggest benefit, tax savings, and coverage you and your family actually need, talk to a trained consultant who can guide you through the process.

If you’d like me to help you with health care selections during open enrollment season or any other financial related issues, I’ve opened up more Divorce Strategy Sessions on my calendar in late October and early November for those who are not current clients and want some extra help with financial related issues. In my Divorce Strategy Sessions, we will discuss your needs, your options and your budget so you can make the best choices for you and your future!! Click here to learn more about Strategy Calls and schedule yours today!

Dividing Annuity Assets in Divorce

September 29, 2020 By Denise French, CVA, MAFF, CDFA, CRPC

Dividing community property, or property jointly owned by a married couple, can often be a complicated process, with your financial options dictated by potential tax implications. While some things may be easy to divide, others are not. Some belongings are sentimental, while others — such as annuities — involve complicated financial calculations. Annuities not only involve moving ownership from one person to the other or joint title to single title, they often also involve moving or potentially deleting critical living benefits, guarantees and/or death benefits as well as surrender penalties on top of potential tax liabilities. That is a lot! Annuities in divorce are complex to say the least. We will attempt to unravel the complexities of annuities as they relate to divorce or at least guide you on what questions to ask.

Annuity Phase

While there are multiple types of annuities (fixed, fixed index, variable, immediate and deferred) all types of annuities are typically in either the accumulation phase or the distribution phase. The different phases will determine how value and divide the annuity in a divorce situation.

Accumulation Phase

If an annuity is in the accumulation phase, it is growing. The annuity may be growing by a simple fixed rate – aka a fixed annuity or by a variety of factors in the fixed index or variable space. The key take-away is there is only growth in this phase. Income has not yet started. This is a critical factor in divorce negotiations. In the accumulation phase the annuity can have three main parts – the actual cash value, the guaranteed benefit amount and the death benefit.

Cash Value

This is the actual cash value. This is real money and should be the value on the marital inventory. This value may have a surrender charge affiliated with it which should also be reflected on the marital inventory. If you do not see a surrender charge on the statement, it is wise to call the carrier and confirm no surrender fee exists. Also, if the contract is still under surrender charge penalties, ask the carrier if they will waive the surrender charge in the case of a divorce where the account is divided between the spouses. We have found quite often they do not waive any fees even though the division is pursuant to a divorce.

Guaranteed Value or Living Benefit Amount

In the accumulation phase, this is the living benefit amount. Many contracts offer a certain amount of guaranteed growth for future income. For example, some annuities may guarantee 7% growth, compounded annually with possibly even a high-water mark (meaning the annuity will capture the highest day of market gains in the annuity contract that year plus add the 7% guaranteed growth on top of this value). Sound too good to be true? What is the catch? This amount is not real money – it cannot be withdrawal in a lump sum. It is the value for which a future income stream is derived. In our same example, let’s say the contract grows by 7% guaranteed compounded annually, and when the client is age 65 a 5% income stream can be taken, guaranteed for life off the 7% compounded number. (In some cases, the income stream will also double for long term care needs for a certain amount of time.) In divorce, the guaranteed amount is often erased if the annuity is divided. This can cost the overall estate hundreds of thousands of dollars.

Know if there is a living benefit and if so, what happens if the annuity is divided between the spouses? The living benefit number is often quite higher than the actual account value, but this is not the number to be listed on the marital inventory. It is a phantom number used to derive a set amount of income at a future date. However, because there is an account value it is the actual cash value which is listed on the estate spreadsheet. The annuities are designed to deplete the cash value over time when the income begins if you live long enough, so this number is not listed on the inventory when the annuity is still in the accumulation phase.

Death Benefit

Sometimes annuities have stand alone death benefits or death benefits attached to the living benefits. This means a certain amount is guaranteed at the death of the annuitant. In some cases, the death benefit is the reason an annuity is sold as life insurance was not an option or was too expensive. It is important to know if an enhanced death benefit exists and if so, know this and other relevant facts. Who is the annuitant? What is the death benefit exactly? What happens in the case of divorce if the contract is divided or moved to the non-annuitant spouse? Now that the couples are divorcing, is the death benefit still relevant or should other options be considered? The death benefit should be on the latest annuity contract statement. However, it is not listed as an asset on the marital inventory as it will only be pain in the event of the annuitant’s death.

Income Phase

If an annuity is in the income phase, it is in distribution. The distribution may be a systematic withdrawal stream on a guaranteed basis, a systematic withdrawal on a non-guaranteed basis or annuitized. This set of facts is vital to know in the case of a divorce.

Systematic Withdrawal – Guaranteed Basis

This should be the most common situation with an annuity. The income from the living benefit has been triggered. In the example above, the 5% income stream at age 65 has begun off the 7% compounded annual growth the annuity provided. If this is the case, the annuity may not be divisible without significantly hurting the amount of income the annuity provides on a guaranteed basis. Contact the carrier to determine how, if at all, the annuity can be divided, and the income stream kept intact. The income stream however may be divisible. The division of this works much like a pension on the estate spreadsheet where a net present value of the future income stream is calculated, and this is the number on the marital inventory.

You can also forego a net present value calculation of the income on the marital inventory and split the income 50/50. We recommend contacting the annuity carrier to determine if division can occur at the carrier level so there is little, if any, interaction between the parties. You will also want to ask the annuity carrier what happens if the annuitant dies. The wife may not receive any payout if the annuity is based only on the husband’s life and he dies or vice versa. Some payouts are based on joint life and some are on single life which were determined at the income stream’s inception. It is vital to understand what happens in the event of one spouse’s death.

Systematic Withdrawal – Nonguaranteed Basis

If this is the case, you can likely divide this annuity. It may not be attached to a living benefit guarantee. This is the least likely to exists and rarely seen, but it is a possibility. It is important to call the carrier and determine your options if this set of facts exists with your annuity. The issue will be mainly surrender charge penalties when this annuity is divided if it is still in the penalty period. We would also ask if there are any issues with the annuitant – is it joint annuitant or single annuitant and will this be possible if you change to the spouse who wants the asset or if you divide the contract in half.

Annuitized

If this is the case, the annuity cash value no longer exists – it is only an income stream. Older contracts typically have this. Most newer contracts do not require annuitization because the contract corpus is gone – it belongs to the annuity company. The valuation of this is now just like the valuation of a pension plan. The carrier may have the income based on joint life or single life. They may divide the income in half but when one spouse dies, the income stream may cease for all. The carrier must be contacted to determine what happens at the death of the owner and/or the death of the annuitant. These facts are important to know as they relate to the income stream after one spouse dies. If you do not want to divide the income, one can calculate a Net Present Value of the future income stream as one would a pension and this number should be indicated on the marital inventory as an asset to be offset with other assets.

Owners and Annuitants

Aside from the issues we stated above in valuing and dividing annuities in the accumulation and the income phases, the named owner and named annuitant could alter the course of the annuity division. It is vital to know who the owner is and who the annuitant is (they may not be the same). These set of facts may determine what happens to the contract when this is divided to the non-owner and/or non-annuitant. Some contracts are jointly owned the with joint annuitants or jointly owned with single annuitants – and each carrier can handle dividing these differently. A simple call to the carrier and a discussion with a member of client services advanced team should straighten out these issues, we just want you to know what to ask for.

Summary

We highly encourage you to reach out to a professional who not only understands annuities, but also understands divorce laws in your area. A Certified Divorce Financial Analyst is the perfect person to have on your team if you or your spouse own an annuity and you are walking through a divorce. We at Divorce Strategies Group understand annuities and divorce finance and can help as well. Contact us for your 30-minute free consultation today.