Structured settlements, while normally associated with personal injury or workers’ comp cases, are being used in divorce proceedings with increasing regularity.
During negotiations, a settlement amount is agreed upon upfront. The amount is then placed in an annuity. A payment schedule is created so the recipient spouse receives payments from the annuity pursuant to the schedule. The schedule may call for payments to be made weekly, monthly or whenever is suitable to the recipient spouse.
Child Support. Child support payments can be structured the same way as spousal support. In addition, milestone payments can be arranged for expenses such as braces, car purchases and tuition costs. The structured settlement would spell out when the funds would be available and how they would be spent.
Tamper-Proof. An important benefit of structuring support payments is that neither the payer nor recipient spouse has access to the annuity or its underlying assets–so both sides can be assured that the funds cannot be tampered with. Another benefit is that once the annuity is in place, it safeguards against the ups and downs of the markets and the economy. The recipient spouse need not worry that the paying spouse will suddenly stop paying the agreed upon amount if he or she experiences a financial calamity, loses his or her job, becomes too ill to work or even dies.
Avoiding Money Disputes. Marriage dissolutions are often filled with acrimony. Once the structure is created, payments from the annuity are made through a third party (called an assignment company) so the two former spouses never have to communicate over money. This eliminates one of the major issues that could create ill will between the two parties.
Tax Consequences. Because these structures are non-qualified (payments are taxable when withdrawn), the income tax obligation is due in the years the money is received. MetLife is one of the insurance companies offering this product. It uses a U.S.-based assignment company (a first in the industry) to assign funds from one party to another.
These structured annuities must follow certain underwriting guidelines by the issuing life insurance company. Feel free to contact me with any questions.–Pat