Splitting the Structured Settlement: Things to Know When Going Through a Divorce

Going through a divorce can be a difficult time in a person’s life, but you are not alone if you are experiencing this. About 41% of first marriages end in divorce, and the numbers are even higher for second and third marriages, at 60% and 73% respectively.

As well as being emotionally taxing, a divorce process can involve significant financial hurdles. These challenges become steeper when a structured settlement is thrown into the mix.

A structured settlement typically occurs as the result of a successful lawsuit due to an injury or medical malpractice. But even if you are the one who received the settlement, your spouse may be entitled to some of it.

How Will My Marriage Affect the Division of My Settlement?

A quick internet search will give you a broad understanding of what equitable distribution and community property are, and how they can affect your structured settlement should you get a divorce.

However, it can be quite nuanced and somewhat complicated. Each equitable distribution state treats division of property differently, and each community property state treats the division differently, too.

More importantly, most of the states have different laws with respect to structured settlement payments and how they’re distributed during a divorce.

Find a legal representative that is familiar with how asset division for structured settlement awardees works in your state. It is the best way to address any problems or misunderstandings in what can be an already tough situation.

If you are the primary recipient of the settlement, you might be thinking this sounds like a bad deal. However, there are a few advantages to a divorce involving a structured settlement for both parties.

Advantages For Spouse Receiving Payments:

  • If you are the recipient of part of your spouse’s structured settlement payments, you will likely be able to continue to receive them tax-free.
  • The length of payments can be guaranteed and will be paid even if the receiving spouse remarries.
  • The payments are made by a major insurance company, therefore greatly reducing the risk of nonpayment.
  • The payout options for these plans are flexible.
  • Depending on the state and the parties’ circumstances, the annuity may be creditor-proof (including creditors of the ex-spouse).

Advantages Of The Spouse Making The Payments:

  • You will not need to maintain continuous interaction with your ex-spouse regarding finances.
  • You will not have to deal with the administrative burden of making the regular monthly, quarterly or annual payments.`

Children Receiving Settlements

It gets more complicated still. If a divorcing couple has a child who is entitled to receive structured settlement payments, often times one of the parents is receiving the payments on behalf of the child as guardian ad litem, personal representative or in some other capacity. This could be the case if the child was injured during birth or at any time as the result of medical malpractice.

In this instance, the scheduled payments are designed to help with your child’s living expenses and ongoing medical care. Because it is the child’s money, this type of settlement generally would not be divided during a divorce.

Unfortunately, statistics show that the parents of a disabled child are more likely to divorce. In this event, who manages the structured settlement payment streams will need to get laid out in the divorce agreement. If the parents agree to a relatively equal custodial split, they can establish a trust fund for the payments to be deposited while the child is a minor. This will allow both parents to access the funds from the monthly payments to go toward expenses for their child.

Legal Help Is Key

Often during an emotionally-charged time, people can lose sight of their long-term financial needs and goals. This is why it is important to work with an expert lawyer or mediator—someone who really understands structured settlements and the laws surrounding them, as well as divorce cases.

Many people make the mistake of waiting too long to seek counsel and have already reached a point where they are confused, overwhelmed and frustrated.

Securing a divorce lawyer with experience dealing with complex assets does not mean that you are greedy or spiteful. It is the smart decision to make in a time where you are going through a lot of difficult emotions, and dealing with a legal process that is complicated and confusing.

How to Find an Attorney

When you decide to hire an attorney, you can begin your search by asking friends and family members for recommendations. Even if the attorney they used practices a different type of law, those professionals likely know other practitioners in the field who may offer the specialty you need.  If they don’t know anyone personally, they may be able to tell you if the person you are considering has a strong reputation in family law.

You can also try your state or local bar association’s lawyer referral service, which will list attorneys by specialty. You can find your local site through the American Bar Association’s national Lawyer Referral Directory.

It’s a good idea to interview multiple prospects rather than selecting the first name on the list. The right divorce lawyer or mediator should help make you feel at ease about the process, and carefully and patiently explain the process and answer all your questions. Choosing the wrong attorney could end up costing you — both your money and your time. When you find someone you’re interested in, check your State Bar’s website to see if any disciplinary actions have been placed against him. Consider asking the following questions:

  • Who exactly will I be working with?
  • What are your credentials?
  • How much experience do you have working with structured settlements in divorce cases?
  • Can you give me a sense of the costs involved?
  • How would you be paid?

SenecaOne’s account representatives have experience working with annuitants and their counsel as they navigate through the divorce process, and we can work with you if selling a portion of your structured settlement payments makes sense in resolving some of the issues related to your divorce. Contact us today to set up your free initial consultation.