Dividing a Variable Annuity in a Divorce Settlement

The division of assets is an important part of your divorce agreement. The compromises you make here will have a long-lasting impact on your financial security, so it’s crucial to understand the implications of each decision you make. Variable annuities are a fairly common part of many retirement portfolios, so you may need to look at splitting one when dividing assets. However, this can be tricky. Annuity contracts vary across companies, so there are no hard and fast rules for annuity division.

You need to make sure your best interests are represented in a divorce. That’s where we step in. Call Kirk Drennan Law at 205-803-3500 to schedule a consultation now.

Why Variable Annuities Complicate a Divorce

Annuities vary substantially across different companies, which is why it’s important to work with an attorney familiar with the financial assets owned by high-income couples. Dividing an annuity unfairly or without considering its specific terms can have disastrous financial consequences.

Fixed annuities are fairly straightforward. When someone buys a fixed annuity, they know how much money they will receive after retirement. Variable annuities live up to their name—they vary, depending on how the purchased assets do in the market. Generally, these annuities are tied to mutual funds.

This is the main complication. How do you divide an asset when you don’t know how much it will be worth in the future?

How the Annuity Was Funded

Other factors complicate annuity divisions. First, you have to think about how the annuity was paid for. If it was purchased prior to the marriage, it is likely a separate asset and will not be subject to division. Even if it was purchased during the marriage, it may still be a separate asset if it was paid for with inherited money or a rollover from a different retirement account. Again, this depends on when the account was funded.

Options When Dividing a Variable Annuity

When you decide to split an annuity, you’ll genuinely need a QDRO. A QDRO, short for qualified domestic relations order, includes information on alimony payments, child support, and other payments from marital properties. This is what allows a financial company to transfer assets to an ex-spouse as part of a divorce order.

Splitting a financial asset outside of a QDRO can have massive tax implications. Annuities transferred outside of a QDRO may be subject to a 10% penalty and charged taxes on the withdrawal amount. Ideally, a transferred annuity will roll right over into a new annuity for the other party, avoiding fees and other concerns.

However, you and your ex-partner can also decide not to transfer the annuity at all. This doesn’t mean that you aren’t entitled to your share of it. If your ex-partner would rather keep the entire variable annuity or avoid the hassle of splitting it up, you may be able to get the same outcome by splitting up other assets.

For example, consider an annuity that is worth $100,000. You agree to split it in half. However, rather than actually dividing the annuity, you allow your ex-partner to keep it in full. Instead, you receive an additional $50,000 from the sale of your marital home.

Protecting Your Best Interests

Retirement assets are a complicated part of the division of assets. Failing to do your research at this step can damage your financial security and wellbeing. It’s highly recommended that you work with an attorney with extensive experience in the division of complex assets. Consulting the proper professional for your needs can help you avoid tax consequences, get your fair share of marital assets, and set yourself up for long-term financial growth.

At Kirk Drennan Law, our experience with high net worth divorces makes us a natural choice for couples with complex asset portfolios.

Choose Kirk Drennan Law for Your Family Law Needs

Ready to pursue a fair division of assets in your Alabama divorce? It’s time to talk to the team at Kirk Drennan Law. Our team is ready to fight aggressively on your behalf and make you get what you’re owed. To schedule a consultation, call us at 205-803-3500 or contact us online.