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Splitting Annuities in Divorce

September 14, 2019

Is an annuity account in your divorce picture? An annuity can seem harder to split than a marriage, according to an article in the May 2016 issue of Research Magazine.

An annuity account gives the account holder the  right to receive periodic payments, usually fixed in amount, for life or a term of years. Unlike pensions, which can usually be split by court order, annuities are split only by a handful of the companies that offer them.

Strategies for handling annuities in divorce include leaving the annuity with one spouse, giving the other spouse an asset of equal value. Annuity values are not always obvious. For example, if the annuity features a death benefit, it is likely to be worth more than the account value.

Other variables in valuing annuities include the annuity holder’s cost basis, the value of annuity benefits (which can be living and/or death benefits), any cost to surrender the annuity (which can be in double digits, expressed as a percentage of the account value — for example, a $300,000 annuity account may decline to $220,000-$250,000 in value if surrendered) and whether the annuity pays guaranteed interest.

Bottom line: annuities are not as tractable in divorce as certain other investment products that divide more readily. Except for situations where all annuity benefits can be kept fully intact, divorce and annuities can be a costly combination and divorcing spouses should obtain complete information before agreeing to split an annuity.

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