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Annuity Help When Baby Boomers Divorce


Annuities and divorce seem to be a hot topic in the financial news right now, so I thought it would be worth some coverage.  According to Insurance News Net’s Linda Koco in the article “Annuity Clients Getting Divorced? Step Carefully,” advisors have a lot of work to do when it comes to their annuity clients getting divorces.  A quarter of divorces are occurring in the Baby Boomer generation, those over fifty years old.  This age group is twice as likely to be getting divorced as the same age group was two decades ago.  Since this is also the age group most likely to be purchasing or owning annuities, advisors need to know what to do for their clients to protect annuity assets in the case of a divorce.

Whether you are the advisor that sold the divorcing couple an annuity or not, you need to determine what type of annuity the client has.  This includes whether it is a qualified or non-qualified annuity as well as whether it is an income annuity or a deferred annuity.  Most insurance companies allow the advisor of record to deal directly with them when splitting an annuity or filing divorce paper work.  If you’re not the advisor of record though, you will have to guide your client through dealing with the insurance company on their own.  The article advises advisors to keep an eye out for trouble in a married couple’s relationship if is seems obvious.  It won’t hurt to have some kind of a plan in place in case a divorce is imminent.  But in most cases, people have not made a contingency plan for their annuities in case they divorce in the future.  Those with a prenuptial agreement should have a smoother process than those without though.

A Qualified Domestic Relations Order (QDRO) is necessary if you have a qualified annuity.  This document helps clients avoid a huge tax debacle when they have tax-deferred accounts like annuities.  Many attorneys and judges are not quite familiar with all of the inner workings of annuities and might make orders that can’t legally be done with annuities, such as splitting them 50/50 or changing owners.  Sometimes you can lose out on the purchased riders and guarantees that your annuity had after a divorce.  When the owner is changed or the annuity changed without carefully reading the prospectus, your riders and guarantees could end up being null and void, or at the very least changing.

Advisors may not be making money if they are consulting a client or a couple regarding a divorce and their annuity questions.  But helping clients through this difficult time almost always ensures that they will remain a client of yours in the future.  Especially when it comes to clients over the age of fifty, they are thinking about retirement and may want to use some of a divorce settlement to purchase an annuity for themselves to guarantee future lifetime income.  Very wealthy clients may benefit from putting some of their money into a type of trust long before a divorce ever occurs.  That money would be protected in the case of a divorce.  Advisors need to remember that if their clients are getting a divorce, their main job is to help them figure out what to do with any annuities and try to make sure that a judge or attorney knows the annuity rules as well.

Written by Rachel Summit

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