It’s hard to believe that it could ever happen to you and your family: the death of an ex-spouse.
While this not only involves a complicated grieving process, from a practical standpoint it can completely change your life if that spouse was responsible for financial support.
Here’s what you should know
Spousal support 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.
Protect yourself and your family
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 peace of mind is worth the cost.
In order to determine the death benefit amount needed you would do a present value calculation on the stream of cash flow from the spousal support payments: A $5,000 per month spousal support payment payable for 10 years would have a present value of $471,540.
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.
Need help determining how much life insurance is appropriate for your situation? Cross Roads Divorce Advisors can help you with this very necessary step in divorce financial planning.
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.