Divorce

3 Signs Your Client Needs a Divorce Financial Advisor

Jacki Roessler Contributed by: Jacki Roessler, CDFA®

Not every client needs financial planning advice during their divorce and certainly, not every client feels they can afford it. We’re often asked if there are any tried and true red flags that should alert an attorney that divorce financial advisors should be consulted. 

Read on to discover the top 3 signs some outside help is typically needed.

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1. Your client is afraid to sign the settlement agreement.

You’ve assured your client Doug that he can afford to pay the agreed upon spousal and child support. His income is high–you believe it’s a good settlement for him. However, he’s worried he won’t be able to afford his own expenses if he agrees to the settlement. The solution? You send Doug to a financial specialist who runs projections that give him a concrete number for his after-tax, post child and spousal support net income. Now, Doug can make decisions from a position of knowledge, not guess-work.

2. Your client is willing to give up everything for the “_______.” Fill in the blank with anything that fits; it could be the marital home, his or her pension, a share of a family business, etc…

Consider this all too familiar scenario:

Mary and Joe were married for 13 years with three children under the age of 10. Mary was a full time mom while Joe was earning a hefty salary. Mary is emotionally attached to the house and was willing to walk away from all the retirement and cash assets to keep it. Mary’s attorney is concerned and sent her to a divorce financial advisor. Together, they prepared a reasonable monthly post-divorce budget and looked at several different cash flow and net worth projections. Mary was sad to discover that if she kept the house and did not return to work, she would run out of money in 3 years. She was sad, but empowered to make decisions from a position of knowledge.

3. One or both parties have pension plans and retirement accounts that will need to be divided equitably.

No two corporations have identical retirement benefits for their employees. Furthermore, even in the most amicable of cases, employees often don’t understand all the quirks of their particular pension and/or retirement savings plan. As a firm that prepares close to 1,000 orders that divide retirement benefits pursuant to divorce, we have in-depth knowledge of what makes Acme Widgets’ 401k different from Beta Widgets’ 401k as well as the federal requirements and restrictions related to post-divorce division. Since no two plans are alike and no two divorce cases have the same circumstances, a specialist should be called in on every case unless the attorney has intimate knowledge of the plans being divided.

This leads to the obvious concern: can my client afford to get financial advice? Often, the client that needs advice the most is the one who feels they can’t afford it. Don’t assume that a divorce financial advisor won’t take a case on a limited basis. It always pays to inquire if they may be willing to offer clients an hour or two of consultation time. 

Divorce can be complex even under the best of circumstances. The financial aspects of divorce not only have the potential to be complex, they may also be emotionally-laden. Helping your clients find the path to financial stability may require the expert advice of a financial advisor.

Jacki Roessler, CDFA® is a Divorce Financial Planner at Center for Financial Planning, Inc.®


The above examples are hypothetical in nature for illustrative purposes only. Views expressed are not necessarily those of Raymond James Financial Services and are subject to change without notice. Information contained herein was received from sources believed to be reliable, but accuracy is not guaranteed. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success.

Tax Deductible “Alimony” Workaround for 2019 and Beyond

Jacki Roessler Contributed by: Jacki Roessler, CDFA®

After January 1, 2019, negotiating alimony in divorce cases will become significantly more difficult.  Pursuant to the Tax Cuts and Jobs Act and the repeal of tax law in place since 1942, alimony will no longer be treated as tax deductible for the payer in cases finalized on January 1, 2019 or later.

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Great news for the alimony recipient? Not necessarily.

Consider the following example: When Jane and John got divorced in 2017, John's income was $250,000 per year, and Jane was a stay-at-home mom with no earned income. John agreed to pay Jane $3,000 per month in alimony.  Since he was able to deduct that amount from his income, his monthly out-of-pocket cost for the support was $2,130. Jane, of course, had to pay income taxes on the alimony. After paying taxes, however, her net ($2,400 per month) was greater than the out-of-pocket cost to John. This was an effective way to shift income from a high bracket to a low bracket and give John an incentive to pay Jane more in support.

By comparison, eliminating this tax benefit takes more money out of the hands of the divorcing couple and puts it in the hands of the IRS. The payer doesn’t have an incentive to pay a penny more than his/her out-of-pocket cost.

Is there a workaround that could still provide couples with the advantage of shifting the tax burden from the high wage earner to the low earner in the context of alimony payments?

In some cases, the answer may be a surprising yes.

Let's look at the case of Brian and Julie, who are in the same financial position as John and Jane. Julie is requesting $3,000/month in alimony for 6 years. Her attorney suggests that the parties negotiate a lump sum buy-out on alimony from a pre-tax account. This would provide the same tax benefit (shifting income from a high tax bracket to a low bracket) that the alimony deduction would have provided. With the help of a financial advisor, they determine that $3,000 per month in tax-deductible alimony is equal to $200,869 in pretax, lump-sum dollars (this assumes a 3% discount rate). To satisfy his alimony obligation, Brian can therefore transfer to Julie $200,869 from his IRA or Qualified 401k plan via a Qualified Domestic Relations Order (QDRO).

By transferring the retirement assets, Brian avoids the income tax liability that is embedded in those assets. When Julie takes money out of the account, she’ll pay ordinary income taxes on any distribution, at her marginal tax bracket, just as she would have with taxable alimony payments. As long as she is at least 59 1/2 years old, she can immediately begin taking distributions without incurring a 10% penalty.

This strategy comes with some significant drawbacks. First, a lump-sum buyout means the award becomes permanent and non-modifiable. With traditional alimony, if Julie were to die before the end of six years, Brian’s alimony obligation would cease, so Brian might have unnecessarily pre-paid alimony. The same could be true if Julie remarried during the payment period, Brian became disabled, or future alimony was modifiable in any way.

Of course, another shortcoming to this strategy is that many couples don’t have access to a large lump sum in retirement assets.

The best candidates for this workaround are likely older couples who can defer their income needs to retirement, are at least 59 ½ years old and ready to begin taking annual distributions from retirement assets, and understand all the risks involved with pre-paying support.

As always, qualified and personal legal, tax, and financial advice is necessary before making any financial decisions in divorce.

**Local attorneys…to learn more about this strategy and other hot tips for 2019, mark your calendars for my educational seminar on January 30, 2019, at the Bloomfield Township library.

Jacki Roessler, CDFA® , RJFS Branch Associate, is a Divorce Financial Planner at Center for Financial Planning, Inc.®


Expressions of opinion are as of this date and are subject to change without notice. This materi-al is being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. Illustrations provided are hypothetical examples.

No Longer Taboo: Talking to Your Kids About the Finances of Divorce

Jacki Roessler Contributed by: Jacki Roessler, CDFA®

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Recently I sat down with my client, “Jane” for a “moment of truth” meeting. The culmination of several client meetings and extensive number crunching, it was apparent that Jane’s primary financial goal wasn’t realistic. Above all else, Jane wanted her three children to experience little to no change in their current lifestyle.

Based on my projections, that wasn’t likely to happen without significant financial sacrifice on Jane’s part.

The kids’ lifestyle included private school tuition, overnight summer camp and a plethora of expensive extra-curricular activities. As a parent of young children, I empathize with the desire to keep things as stable as possible in the midst of a tumultuous time. As a divorce financial planner, however, my job is to inject a dose of reality into the emotional roller coaster of divorce.

I want my client to understand the short term and long term financial impact of their settlement before they sign on the dotted line.

In this case, Jane was stunned to hear that child support wouldn’t cover all her minor children’s expenses. Like most states, Michigan’s child support formula factors the income of both parents, the parenting schedule, family size and the tax status of the parties into the equation. The actual expenses of the children are not automatically considered. Jane assumed that since her husband had agreed in the past to prioritize private school tuition, he would be required to continue. That wasn’t necessarily the case. Savings for future college costs? Not part of the formula. The same goes for horseback riding camps, travel soccer, music lessons, etc… 

After several tough meetings and in-depth conversations, Jane made some difficult decisions.

The truth was that her kids’ expenses had contributed in some way to the divorce; she and her husband had been living beyond their means.

On the advice of her therapist, Jane sat down with her kids to discuss developing a family financial game plan. That might mean downsizing their house or cutting back on some of the extras. It might even mean a change of schools. However, it was empowering for them all (yes, even the kids) to know that they would be ok if they made smart financial decisions now to protect themselves for the future. For example, they all agreed that it was more important for Jane to be home after school than it was for the kids to continue at any particular school. The kids understood that they couldn’t attend every camp they had in the past, but would be able to choose one special experience. Jane didn’t burden her children with specific numbers or financial worries, rather, she initiated a dialogue about prioritizing to keep the family stress-free.

It may feel uncomfortable to discuss finances with children, especially as it relates to divorce, however, it is an important part of the process.

While Jane’s situation was unique, and her results not necessarily representative of all divorce circumstances, frank money talks and responsible role modeling on the part of their parents help children set and achieve their own financial goals as they venture into adulthood.

Jacki Roessler, CDFA® is a Divorce Financial Planner at Center for Financial Planning, Inc.®

3 Common Mistakes in Divorce Financial Planning

Jacki Roessler Contributed by: Jacki Roessler, CDFA®

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Watch this video for some of the most common financial mistakes I’ve seen people make during their divorce. The good news is each one of these is easily corrected. What’s my most important tip? Read below to find out.

Highlights from Divorce Mistakes:

  • Minute :15: Not diving into the details of cash flow planning

  • Minute :46: Not paying enough attention to the details of the retirement account divisions

  • Minute 1:30: Getting emotionally attached to a specific asset-whether it makes sense for you to keep it or not.

  • Minute 1:58: Tip: Treat your divorce as if it was a business splitting up-you’ll get better results

  • Minute 2:20: Staying married for ten years-impact on future Social Security income

Over the past 24 years, in every case I’ve seen, there comes a time when a client says, “I agree! I just need to be done with this.” Everyone feels this way at different times in their settlement process. I felt it in my divorce, and this is what I do for a living! Getting divorced is stressful-even for amicable couples. However, fighting this urge is the key to getting a settlement you can live with today and in the future. When you start to feel like you’re willing to accept anything so you can move onto your next chapter, take a breath and slow down. Immerse yourself in the details of the offer on the table. Analyze it. Tweak it. Understand it. No detail is too small, and no question is too silly.

If you have individual questions on your specific case, feel free to contact our office to set up a consultation with one of our advisors

Jacki Roessler, CDFA® is a Divorce Financial Planner at Center for Financial Planning, Inc.®

Tick, Tock: Impact of the New Tax Law on Alimony and Divorce

Contributed by: Jacki Roessler, CDFA® Jacki Roessler

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Getting divorced in 2018 and planning to pay or receive alimony?  You may not realize it, but there’s a tax “timer” hanging over your head and the buzzer is set to go off.

Current Law  

Based on current tax law, the payer of alimony may deduct the full amount from their taxable income which, in turn requires the recipient to treat it as taxable income.

How does this work in the real world?

Suppose Harry pays Sally $5,000 per month in alimony. Sally doesn’t get to keep  $5,000 because it’s treated as taxable income to her.  Based on her tax bracket, her actual monthly net is $3,750. Conversely, since Harry is in a higher tax bracket than Sally, when he writes a check to Sally for $5,000, the deduction translates to an out-of-pocket cost to him of $3,000.

What about the difference between the $3,750 that Sally nets and the $3,000 that it costs Harry? Uncle Sam has been footing the bill on the $750 differential in tax revenue. That is exactly what this new regulation is structured to eliminate.  

The New Tax Law and Alimony

The new tax law does away with the tax deduction for alimony. Of course, alimony also won’t be treated as taxable income to the recipient. The new law goes into effect for divorce cases finalized (not filed) with the Court after December 31, 2018. Cases finalized by December 31, 2018 will be grandfathered into the old tax law.

Why divorcing couples (especially the recipient of alimony) should care about the tax law change

In practical terms, taxable alimony shifts income from a high tax bracket to a lower one.  Some have argued that it gives divorced couples an unfair financial advantage not available to married couples. However, for the past 75 years, the tax deduction has made alimony a valuable negotiation tool used by attorneys across the country to help settle divorce cases. In fact, it’s often one of the only ways to help provide a fair (or) equal resolution during a difficult financial time for both parties.

When is the timer set to go off?

Although divorce attorneys and their clients may think they have until year-end before they need to worry about the changes, many states have a mandatory cooling off period once the case has been filed with the Court. Michigan, for example, has a 60 day waiting period; however for couples with minor children, the waiting period is typically extended to 180 days. Therefore, depending on where you live and if you have minor children, you may only have until the end of June 2018 to file and take advantage of tax deductible alimony.

As always, every case is different. Consult with a tax preparer, attorney and/or divorce financial professional to help you understand how the tax law changes may affect your divorce.

Jacki Roessler, CDFA® is a Divorce Financial Planner at Center for Financial Planning, Inc.®


The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jacki Roessler, CDFA®, Divorce Financial Planner and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This material is being provided for information purposes only. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. The hypothetical example above is for illustration purposes only.

Get to Know Jacki Roessler, CDFA® Certified Divorce Financial Analyst

Contributed by: Jacki Roessler, CDFA® Jacki Roessler

Financial errors in divorce are unfortunately as common as the divorce rate in the United States. Several factors contribute to that today including the increase of “grey divorce” (divorce over the age of 50), tax law changes just put into effect by the current Administration, as well as complications in the way we save for retirement and local housing market value fluctuations.

However, none of the above factors are as significant as the real issue for most errors, which is the underlying emotional currents that impact divorce settlements. After all, these aren’t simply business entities breaking up. The break-up of a marital estate is fraught with emotional factors that impact a couple’s ability to make sound financial decisions.

That’s where a divorce financial advisor comes in. CDFA’s, or financial professionals who have received specialized training in the financial and tax aspects of divorce, may be an invaluable member of any team of divorce professionals. Working hand in hand with attorneys, CDFA’s guide clients to make decisions based on black and white numbers, projections and sound financial information - not psychological attachments to the house or the pension. 

I’ve been privileged to work as a CDFA for over 24 years, and it’s just as rewarding today as when I first received my designation.  Often, clients will come to me with a plan in mind. They’re determined to keep their home. They are on the fence about returning to the job market because they’re not sure how much income they need to target. Most often, they’ve received a settlement from the other side and didn’t know how to evaluate it. “Is this a good deal for me?” is the most common concern I hear. Once we work on their post-divorce budget and review long-term financial projections together, they have clarity. It allows them to make a decision based on a position of knowledge. Even if they can’t afford to keep the house, they feel empowered having that information today. Also, focusing on the “business” side of the divorce is often good therapy to get their mind focused on the positive aspects of the new life ahead of them.

Jacki Roessler, CDFA® is a Divorce Financial Planner at Center for Financial Planning, Inc.®

Webinar in Review: Part 3: Divorce & Finance 101 for Michigan Women

Contributed by: Jacki Roessler, CDFA® Jacki Roessler

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I’ve been working with divorcing clients and their attorneys for well over 20 years now. Although every single case I’ve worked on has had its own unique issues and challenges, most initial appointments follow a similar trajectory. First and foremost, I always want to hear what the person in front of me is most concerned about.  In fact, I want to hear ALL of their financial concerns and questions relative to the divorce.

Once their concerns are on the table (and in my notepad), I find that most clients need education on the basics.  In fact, it’s been a rare first meeting that doesn’t end with me stepping up to a white board to present what I call “Divorce Finance 101”. If my client doesn’t understand the key issues that surround child support, alimony and property division, we can’t even begin to address concerns about handling a family-owned business, paying for college costs, substantiating the need for alimony or what may or may not be considered separate property.

The webinar that follows is a compilation of my favorite topics from “Divorce Finance 101”. A few words of warning. This information is fluid. It changes over time as State, Federal and tax law changes occur.  There are always exceptions to all the “basic rules” too, of course. Most importantly, I am not a lawyer and therefore cannot provide legal advice. I can only give information based on my professional experience. My most important piece of advice to any client is how critical it is to hire a qualified, experienced family law attorney that practices often in your county court system.

As always, please feel free to contact me at jacki.roessler@centerfinplan.com for any questions that are specific to your case or if you have any future webinar topics you’d like to suggest.

Jacki Roessler, CDFA® is a Divorce Financial Planner at Center for Financial Planning, Inc.®


Any opinions are those of Jacki Roessler and not necessarily those of Raymond James. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Webinar in Review: Part 2: Cash Flow Planning for Women in Divorce

Contributed by: Jacki Roessler, CDFATM Jacki Roessler

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Developing a game plan with minor children can be empowering for all

(Adapted from a blog previously published in 2015)

Recently I sat down with my client, “Jane” for a “moment of truth” meeting. The culmination of several client meetings and extensive number crunching, it was apparent Jane’s primary financial goal wasn’t realistic. Above all else, Jane wanted her three children to experience little to no change in their current lifestyle.

Based on my projections, that wasn’t likely to happen without sacrificing the family’s long-term financial well-being.

The kids’ lifestyle included private school tuition, overnight summer camp and a plethora of expensive extra-curricular activities. As a parent of young children, I empathize with the desire to keep things as stable as possible in the midst of a tumultuous time. As a divorce financial planner, however, my job is to inject a dose of reality into the mix for my clients-before they make agreements they may regret in 3 years.

In this case, Jane was stunned to hear that child support wouldn’t cover all her minor children’s expenses. Like most states, Michigan’s child support formula factors the income of both parents, the parenting schedule, family size and the tax status of the parties into the equation. The actual expenses of the children are not automatically considered. Jane assumed that since her husband had agreed in the past to prioritize private school tuition, he would be required to continue. That wasn’t necessarily the case. Savings for future college costs? Not part of the formula. The same goes for horseback riding camps, travel soccer, music lessons, etc…

After several tough meetings and in-depth conversations, Jane made some difficult decisions. The truth was that her kids’ expenses had contributed in some way to the divorce; she and her husband had been living beyond their means.

On the advice of her therapist, Jane sat down with her kids to discuss developing a family financial game plan. That might mean downsizing their house or cutting back on some of the extras. It might even mean a change of schools. However, it was empowering for them all (yes, even the kids) to know that they would be ok if they made smart financial decisions now to protect themselves for the future. For example, they all agreed that it was more important for Jane to be home after school than it was for the kids to continue at any particular school. The kids understood that they couldn’t attend every camp they had in the past, but would be able to choose one special experience. Jane didn’t burden her children with specific numbers or financial worries, rather, she initiated a dialogue about prioritizing to keep the family stress-free.

It may feel uncomfortable to discuss finances with children, especially as it relates to divorce. However, frank money talks and responsible role modeling by parents helps children set and achieve their own financial goals as they venture into adulthood.

If you’re going through a divorce and want more detailed information about cash flow planning, please click below to watch our webinar replay.

Jacki Roessler, CDFATM is a Divorce Financial Planner at Center for Financial Planning, Inc.®


Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on legal issues, these matters should be discussed with the appropriate professional.

Webinar in Review: Part 1: The Grey Divorcée

Contributed by: Jacki Roessler, CDFATM Jacki Roessler

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Social Security Tips for Grey Divorcees: 3 Things We Bet You Didn’t Know

(Revised and updated from an original blog posted in July, 2015) by Jacki Roessler, CDFA™ and Melissa Joy, CFP®)

Back in July, 2015, Melissa and I presented a workshop on Social Security benefits and divorce to attorneys with the intent of giving them information to protect their clients. Since that time, we’ve both worked with many grey divorce (i.e. over age 55) clients who benefited greatly from this advice. We believe now is a good time to bring these issues directly to those in the process of divorce.

1. It is most likely NOT better to claim Social Security early, at age 62.

Generally, as long as you can afford to wait to age 66 and you’re in good health with a reasonable life expectancy, it’s far better to wait to full retirement age (FRA) to collect, in order to maximize lifetime Social Security benefits.

This seemed counter-intuitive for many of the workshop attendees, as it was for me when I began researching this topic. However, there is a steep reduction in benefits for those who collect early. That reduction lasts a lifetime. Keeping in mind that Social Security is an income stream that cannot be outlived, and life expectancy for Americans has increased dramatically, any number crunching will back up this tip. Think Social Security might go bankrupt? Despite what you’ve heard, this is an extremely unlikely scenario for the baby boomer generation and beyond.

Of course, if you need the cash flow and don’t have other sources of income, this strategy may not be feasible.

2. 10 years married is the magic number.

Ex-spouses are entitled to receive up to 50% of their former spouse’s Social Security benefit or 100% of the benefit on their own work history, whichever is greater. However, in order to qualify, the marriage had to last 10 consecutive years and the recipient ex-spouse cannot be remarried.

Suppose Sarah, a lower-wage earner, is in a marriage with a high-wage-earning spouse. Sarah’s ex-husband’s FRA Social Security benefit is $2,400. Sarah could receive 50% of her ex’s benefit ($1,200 per month) or the benefit on her own work history, $700 per month. Wouldn’t Sarah prefer bumping up to the divorced spouse retirement benefit in lieu of claiming her own?

Unfortunately, we see cases all the time where the marriage lasted close to 10 years — but not quite! This is often a critical planning error. Some couples might be willing to stay married for an additional year to have access to a larger lifetime income stream for the low-wage-earning spouse.

Keep in mind that when a divorced spouse’s retirement benefit is paid, it doesn’t impact the high-wage earners benefit in any way. They can still receive 100% of their own Social Security benefit. In fact, as long as the high-wage earner was married to each spouse for 10 consecutive years, he or she could have up to 4 ex-spouses collecting a divorced spouse benefit on their earnings.

3. Consider not remarrying before age 60.

Social Security Widow’s benefits can be up to 100% of the deceased spouse’s Full Retirement Age benefit. This rule applies to ex-spouses as well. Sarah in the example above would be entitled to receive as much as $2,400 per month (remember that her own workers’ benefit was $700 per month and monthly spousal benefits were $1,200). However, there is a little-known caveat: the ex-spouse can’t remarry before age 60. In the example above, Sarah would surely consider putting off her pending marriage to her new beau, Mark, until she turns 60. If the remarriage occurs after age 60, Social Security Widow benefits would still be available.

If you’re going through a “grey” divorce and want more detailed information, please click on the link below to watch our webinar replay.

As always, we’re here to help. If you need assistance, contact Jacki at Jacki.Roessler@centerfinplan.com or Melissa at Mellisa.Joy@centerfinplan.com.

Jacki Roessler, CDFATM is a Divorce Financial Planner at Center for Financial Planning, Inc.®


The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jacki Roessler and not necessarily those of Raymond James. This is a hypothetical example for illustration purposes only. Actual investor results will vary. This is a hypothetical example for illustration purposes only. Actual investor results will vary. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Life Insurance and Divorce: A Cautionary Tale, Part One

Contributed by: Jacki Roessler, CDFATM Jacki Roessler

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Years ago, I got a call from Lindsay, a divorced client that still sends shivers down my spine. Her divorce had been final for two years when her ex, Justin unexpectedly died from a heart attack. In order to maintain her living expenses, Lindsay had been dependent on Justin’s monthly child support payments for their two young children.  Once the initial trauma subsided, Lindsay pulled out her divorce decree and breathed a sigh of relief; Justin had agreed to maintain a $250,00 life insurance policy to secure his child support payments.

So; why the phone call?

Justin missed a premium payment and the policy lapsed. Lindsay’s child support income was gone and despite their divorce agreement, there wasn’t anything to replace it.

The worst part of this situation was how easily it could have been prevented.

Taking a step back, there are four parties to every life insurance contract; the insurance carrier, the policy owner, the insured (the measuring life) and the beneficiary.

Life insurance is a legally binding agreement that the carrier will make a lump sum payment to a designated beneficiary upon the death of the insured-in exchange for annual premium payments. 

The simplest and easiest solution was to require Justin to transfer ownership of the policy to Lindsay at the time of the divorce.  He would have remained the insured and the person responsible for premium payments.  However, when payments are missed, it’s the owner who’s notified, not the beneficiary. Once a policy lapses, it’s too late to reinstate it. A new policy can be obtained, but only if the insured is still in good health and is willing to cooperate with the application process!  Lindsay could have made the delinquent payment herself and then attempted to enforce the divorce agreement directly with Justin or through the court system. Either way, the policy would have stayed in force.

In my experience, attorneys can be very uncomfortable insisting on policy ownership transfers.

By the time agreement’s reached on the parenting schedule, alimony and who gets to the keep the house, no one wants to see the case fall apart over who owns the life insurance policy.  As it was in Lindsay’s case, this was a disastrous mistake on her attorney’s part.

As an additional reason to change ownership on the policy, keep in mind that only the owner can change the life insurance beneficiary. Suppose Justin had remarried and decided to switch the beneficiary to his new wife. Sure, he would have been in default of the divorce decree, but there wouldn’t be any consequences to that once he’s dead.

Another unexplored option in this case was to request that the insurance carrier send duplicate statements to Lindsay, the beneficiary. Since the divorce decree itself isn’t legally binding on third parties (like the insurance carrier), there isn’t any real way to force this on the carrier, but some will comply. 

A last option would have been a requirement that Justin pay annual premium payments instead of monthly. Although most people prefer to make monthly or quarterly payments on insurance contracts, this would have provided Lindsay with less to follow up on. Rather than being forced to confirm monthly payments, she’d only have to confirm once per year.

Luckily, Lindsay’s kids were eligible to receive Social Security survivor benefits, which helped replace some of the child support income and she was eligible for widows’ benefits while their children remained minors. Despite that, she was still forced to sell her house.

The moral to this tale? Sometimes the issue that seems nit-picky or trivial is the one that can unravel someone’s finances after a divorce.  If you’re dependent on an income stream to pay your bills, make sure you understand how it can be protected and then insist on it before you sign your judgment of divorce.

Are there any other tax issues or potential financial pitfalls related to life insurance and divorce?  Glad you asked and yes, there are! Stay tuned for my next blog!

Jacki Roessler, CDFATM is a Divorce Financial Planner at Center for Financial Planning, Inc.®