Boomers are famously the generation that wanted to try anything at least once – apparently that includes divorce.
Today’s post-50 couples are twice as likely to divorce as the over-50 crowd in 1990. In fact, that age group is responsible for one in four divorces, according to a study published by Ohio University’s Institute for Population Research.
That also happens to be the prime years for annuity owners, but who is thinking about annuities in a troubled marriage? It looks like advisors should be, but it is a tricky business, says Morris Armstrong, principal of Armstrong Financial Strategies, a registered investment advisory firm in Danbury, Conn.
For one thing, the advisor needs to determine what type of annuity is involved, he says. “Is it an income annuity? A deferred annuity? Is it qualified or non-qualified? The approach will be different depending on such things, as well as the ownership.”
If it’s an IRA annuity, then the IRA rules take precedence. “But the client will need to know that the asset can be divided if stipulated by the divorce decree, and that the tax-free consequence is important,” he says.
Advisors also need to keep in mind that the account custodians — brokerage firms, mutual funds or insurance companies — may have differing requirements, Armstrong says. For example, one firm may only want a letter from the divorcing husband and wife, while another firm may want to see the final papers from the divorce decree.
Some clients want the agent to provide guidance on how to split an annuity or to meet documentation requirements.
“In that case, if you are the agent of record, you would probably be able to speak to the insurance company on the client’s behalf,” Armstrong says. “But if you’re not the agent of record — say, the divorcing couple has come to you for assistance but they are unknown to you -- the insurance company won’t speak with you.”
An advisor might consider getting authorization to act on the customers’ behalf, he concedes, “but that can be cumbersome.” In that case, the agent will most likely want to advise the policyholder to contact the company directly.
Regardless, he stresses, “Someone must understand how to divide the contract, whether it’s qualified or non-qualified.”
Listen to the client
Steven J. Oshins of the Oshins & Associates law firm points out that “in a solid marriage, there is no reason to have a discussion about what happens to the annuity or any asset in event of divorce. But if the marriage appears to be rocky, or have the potential for becoming rocky, it might be good to have the discussion. It’s too late (after the fact).”
A Las Vegas attorney who works on trusts with high-net-worth clients, Oshins agrees that it’s not always easy for an insurance and financial advisor to know whether a marriage or relationship is strong or rocky. But advisors can sometimes get a hint about this by listening to what the client says about the spouse or prospective spouse.
For instance, if the advisor notices that one spouse is muttering unkind things about the other, that could be a sign that it might be time to bring up the subject of divorce.
Make sure to document all discussions with the home office and the client, suggests Anthony R. Bartlett, a financial advisor and registered representative with Baystate Financial, Worcester, Mass.
Also “make sure you document the discussion with the client about any changes that affect riders, surrender charges, fees etc.,” Bartlett says. “But remember that any discussion with a spouse about the other spouse’s assets should not occur, and that any information gathered during the divorce process with the advisor is not subject to client-attorney privilege and could be brought into discovery.”