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Divorce Structured Settlements

Divorce structured settlements could be looked at as alimony insurance. A divorce structured settlement can provide assurance to the ex-spouse receiving child support obligations, alimony or division of marital property in the form of periodic payments and that payments will be received on time every time. This reduces the time, cost and emotional energy involved in new court proceedings to resolve disputes that may otherwise arise. This will be of particular interest where the paying spouse has wildly fluctuating commission or bonus income, lives a long distance away, or in another country.

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For the paying spouse in a divorce, a structured settlement gives them the opportunity to pay an amount of cash when they presumably have it. If things change for you financially, why be stuck with a bad deal and all the acrimony that goes along with it? For both spouses it's a savings of the future time, expense and administration. One assignee will take on alimony payments where amounts are fixed.

There may be the need for a spouse to have income for a period of time or in lump sums for anticipated needs. Typically the design of such payments is constrained by having to rely on a promise to pay by a single individual (ex-spouse) who may die, become disabled, lose his/her job or business. The paying spouse may not want continued negative interaction on finances with the ex spouse, or a lien on assets. There may be spendthrift issues.

For these reasons structured settlement annuities can be a useful tool when applied to negotiating property division, alimony or paying child support in a divorce. If negotiated and included in the settlement and divorce decree, single or multiple income streams can be created to provide short term periodic payments, lifetime income, college funds, retirement funding in a lump sum or in lifetime payments, or any other needs to be met in future dollars.

From a tax standpoint tax neutral divorce elements such as child support and property distribution are not tax reported. The interest accrued on the annuity payment however, will be reported. The determination of which spouse the interest is assigned to can be set forth in the divorce settlement agreement.


Advantages to Receiving Spouse:

Security--no fear of broken promises of ex-spouse, attendant costs to enforce decree and alimony Payments are:

  • Contractually guaranteed by one of the largest insurance companies (no market risk)
  • Flexible plan designs and security allow for long term pay outs and multiple payment streams
  • The annuity may be creditor proof (depends on your state)
  • Obligation assigned through non qualified assignment process is not subject to general creditors of ex spouse

Advantages to Paying Spouse:

  • Potential for savings in discounted cost of payments
  • Get the obligations off the books through non qualified assignment process
  • Potentially ends obligation and contact with ex-spouse (clean break)
  • No lien on assets from promissory notes

Further Reading:

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