Often Overlooked Issues in Divorce Settlement Proposals and Property Divisions Made By Family Court Judges

Evaluating a divorce settlement proposal isn’t always as straightforward as one may think.

In appropriate cases, it may be well worth it to have a financial advisor and/or tax advisor review a settlement proposal before it is finalized.

One commonly overlooked issue in cases where spousal support and / or child support is involved is assurance to the support-receiving spouse that the support-paying spouse is maintaining a life insurance policy to secure the paying spouse’s obligations.

Of course, it is good to require the paying spouse to provide proof on an annual basis that the policy remains in good standing and full force and effect.

But what if the ex refuses to furnish that proof in years following settlement (or final judgment)?

There are a couple of ways to address this possibility without the receiving spouse having to bring a contempt proceeding.

One way is for the receiving spouse to be designated as the actual policy owner. As owner, the receiving spouse will always be informed of the status of the policy. Even if their ex is ordered to and/or agrees to pay the premiums.

The other way is for the policy to be nonmodifiable and noncancellable without thirty days’ notice to the receiving spouse. There is typically a surcharge for this provision.

But it may be well worth it. This way the ex cannot just pull the plug on the policy without the receiving spouse’s knowledge.

Both approaches accomplish the objective, without the receiving spouse having to chase their ex for proof of the status of the policy.

Then, at least if the receiving spouse does bring a contempt action, they will know that it really was necessary to reinstate the policy and that they will have solid proof of the lapsed status of the policy.

Another important consideration in some cases are tax impacts of alternative divisions of property. Different assets are treated differently for tax purposes.

And this can have a big impact on the ultimate “bottom line” of a settlement or judicial disposition of property by a family court judge … if either party puts on evidence for the divorce court judge to consider regarding tax bases, tax treatments and tax impacts associated with the different marital properties and alternative property divisions in the divorce.

Read more in this Holland [MI] Sentinel article: Making Cents: How to come out a winner in a divorce.