Life insurance to cover alimony

Alimony stops upon the death of the payor. So it is extremely important to protect that stream of income with life insurance on the payor's life. It is also important to consider having the beneficiary be the owner of the policy.

Don't cancel insurance too soon

If all your cars are on one insurance policy and your car's insurance is cancelled because your spouse figures you will get your own, you are without insurance until you do get your own.

Suppose you are the beneficiary of your spouse's life insurance and it is cancelled. Two things may happen: (1) Your spouse may die before the divorce is final and there are no proceeds or (2) The court orders your spouse to carry insurance to cover alimony (see above paragraph) and now the spouse is older and to get new insurance will be much more costly.

Use of a QDRO

This stands for Qualified Domestic Relations Order. It is the legal document that is sent to the plan administrator which tells the administrator how much money from the retirement plan to send to the ex-spouse. It is the only way for the ex-spouse to get payout from a qualified plan such as a 401k. It is typically drawn up by your attorney or a specialist who drafts QDROs.

Some problems with QDROs

If your Qualified Domestic Relations Order is not properly drafted, you may be the loser.

What if your spouse dies after you start receiving your portion of the benefit? Will your portion continue to come to you?

What if your spouse dies before the benefit starts? Will you still get the portion you were entitled to?

What if your spouse takes early retirement with a large buyout package? Does your QDRO say you are entitled to a portion of it?

What if you are to receive half your spouse's 401k but before it is divided the market goes up sharply? Are you entitled to half the increase?

These are some of the many issues that are sometimes ignored when the QDRO is drafted. Be sure to talk to your attorney about these issues.

Don't pay the 10% penalty

There is a way to escape paying the 10% penalty when you have to withdraw cash from a qualified retirement plan such as a 401k before you are age 59 1/2. It has to be done before the money is transferred out of the 401k. (More on this subject next time!)

Value of household goods

Household goods are valued at garage sale value. that means all furniture, pots and pans, sheets, etc. The exceptions would be: antiques, art collections, etc. They may need to be appraised if you feel there is greater value to them. Autos are typically valued by the Blue Book value.

Use of property settlement note

Sometimes there isn't enough cash or other assets to 'buy out' the other spouse. One example would be the family business. In that case, you could do a property settlement note or equalization payment. It is like a note at the bank - you determine the number of months, amount of payment, interest rate, etc. These payments are considered a division of property and therefore are not taxable to the person receiving them, nor deductible by the person paying them.