by John Darer® CLU ChFC MSSC RSP CLTC
What is a Divorce Structured Settlement?
The parties negotiate the terms of settlement of marital property.
The Paying Spouse agrees to settle the marital property interest in the form of periodic payments to the Payee Spouse. The Divorce Settlement Agreement creates an obligation for the the Paying Spouse to make the negotiated periodic payments for a stated number of months or years.
Following the execution of the Marital Settlement Agreement, the Payor Spouse assigns his/her periodic payment 0bligation to an assignment company. In this case we are speaking of a non qualified assignment. The Payor Spouse transfers a lump sum, representing the discounted value of the payment stream due under the Marital Settlement Agreement. In return, the assignment company agrees to assume the Payor Spouse’s payment obligations. The assignment company is a subsidiary or an affiliated company of a highly rated life insurer which issues the annuity contract to the assignment company, which makes all periodic payments required by the Marital Settlement Agreement. In this way, the Recipient Spouse will not be financially dependent on the Payor Spouse, but rather, on a highly rated, well-capitalized life insurer.
When Does a Divorce Structured Settlement Work Best?
- A divorce structured settlement works best if there is enough liquidity in divisible assets and/or the Paying Spouse has sufficient resources to fund a future payment stream for some element of the divorce today;
- Where the amount of future payments can be quantified at the time of settlement. One cannot for example quote a divorce structured settlement for a payment that may vary from one payment to the next, or may otherwise vary over time; AND
- Where the Recipient Spouse would like the security of core income stability that is unaffected by the Paying Spouse's employment status, solvency or income reporting integrity.
- Where the Recipient Spouse would like the security of core income stability that is unaffected by the death of the Paying Spouse.
- Where the Paying Spouse and the Recipient Spouse want to keep things simple