Russell, who hadn't been consulted before the couple began preparing for the split.
“This was essentially the only asset they had, and instead of my client's getting the 0,000 she expected, she's getting almost ,000 less,” he said, “It's a big problem, said adviser Lili A.
Exchanges into a new annuity, however, generally involve the beginning of a new surrender period.
Ideally, an adviser would intercede early in the split, analyze the shared pool of assets and communicate with life insurers about the annuities.
With divorce attorneys typically unaware of the nuances of annuity contracts and the various ways insurers treat contracts in the context of divorce, and with advisers typically out of the loop when settlements are hammered out, the problem lands in the lap of advisers.
“In the case of my client, there wasn't much I could do in the way of alternatives,” said Mr.
Vasileff, president of Divorce and Money Matters LLC and president of the Association of Divorce Financial Planners Inc.
“Most attorneys think these annuities can be divided, and don't wait for the consequences.” Couples who work out divorce agreements on their own are even less likely to consider the financial consequences of splitting an annuity, and typically face surrender charges and loss of accrued living or death benefits due to excess withdrawals.
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What makes annuities peculiar is the fact that they usually are not liquid in the immediate term, and each contract has its own rules on how it can be divided.
Contract terms vary wildly among insurers, with some prohibiting partial tax-free exchanges into other annuities, which potentially could be a way to apportion an annuity in a divorce.