Q. What if my ex is supposed to pay spousal support for 6 years…but they pass away?
Payments must cease upon the death of the recipient in order for it to be considered spousal support for tax purposes and tax deductible to the payor. Spousal support can be paid after the death of the payor, typically from their estate in some form, but most settlement agreements and divorce decrees state that it will stop upon the death of either spouse.
Our suggestion.
We suggest the payor spouse be required to carry a life insurance policy to cover the lost cash flow for the payee spouse in the event of premature death. If this isn’t required in your settlement you should ask for it to be added. In the event the agreement cannot be modified you should consider buying the policy on your former spouse yourself. You will have to pay for it, but the added security may worth the cost.
In order to help determine the sufficient death benefit amount needed you would do a present value calculation on the stream of cash flow from the spousal support payments.
For example, a $5,000 per month spousal support payment payable for 10 years would have a present value of $471,540. (Contact Cross Roads Divorce Advisors if you need help determining the right amount of life insurance.)
No matter the route you take for insuring the payments, make sure you, the support recipient, are both the owner and beneficiary of the life insurance policy. Losing the cash flow from spousal support can have devastating effects on your ability to maintain your lifestyle.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.
Lou Falvo is a Certified Divorce Financial Analyst® and CIMA® (Certified Investment Management Analyst) who assists clients by evaluating the tax and financial aspects of divorce. Lou is dedicated to reducing the burden of each client by thoroughly examining the financial elements of the client’s divorce, with a keen focus on what is in his or her best interests. Contact Lou to find out how he can assist you with your divorce proceedings at lfalvo@crossroadsdivorce.com or (585) 542-2382.