Divorce and Settlement Planning
As you know, there are many financial issues that come about during the process of a 
divorce.
One option to help resolve these financial issues is to structure a settlement as described below.
The Financial Issues in Divorce
Some financial issues that come about during a divorce are:
- Division of property and assets
- Alimony
- Child support
With regard to property and other assets, one spouse may want to continue to hold the appreciated real estate (or other assets) while the other prefers their share of the equity in cash or a series of payments.
Concerning alimony, the issue is generally one of taxation. Alimony is tax-deductible to the payor, and taxable income to the payee. The payor, of course, may like to pay (and deduct) all of the alimony up front in the current year, while the payee wants to avoid receiving all of the alimony in a lump sum and paying all the tax.
Finally, with child support, the issue is a voluntary or court mandated support payment until the child becomes an adult, or finishes college.
A Possible Solution For All Three Issues
A possible solution to all three issues is to structure a settlement between the parties that makes payments over time instead of a lump sum. These settlements are then funded through the purchase of annuities.
The benefits:
- One spouse can, for cash used to purchase an annuity with a guaranteed payment stream, buy the other spouse’s equity in the real estate or other assets
- One spouse can fund future alimony payments in a fashion that allows the payor a current year tax deduction for the amounts spent to fund the settlement while allowing the payee to declare and pay income tax on only those amounts of alimony actually received in future years
- Guarantee to the court and former spouse that child support is fully funded
To understand more fully, the benefits of settlement planning for a divorce situation, please contact us.
