Eternal Support : Firm Has a Newfangled Way to Settle a Divorce: Set Up an Annuity

The Newport Beach anesthesiologist and his wife had agreed to divorce, but there were a few snags.

He wanted to quit his practice to become a professor at a medical school but was afraid he could not afford spousal support if he took a 50% cut in pay.

She was worried about losing the payments if she remarried.

Ringler Associates of Newport Beach had the quick fix they needed--a newfangled way of settling divorces by putting things such as pension funds, second mortgages or savings into an annuity that disburses monthly payments for perpetuity.

The doctor put more than half of his $1-million pension into an annuity that will pay his ex-wife $4,600 a month for the rest of her life regardless of whether he dies or she remarries.

Both parties were satisfied: He saved money because she agreed to a smaller settlement, and she had an arrangement whereby she could count on having the payments arrive regularly.

“We are taking the practical problems surrounding divorce out of people’s hands and placing them in the hands of a third party,” said David Ringler, president of the settlement annuity firm. “Both participants can then get on with their life.”

Ringler has completed 10 of these so-called marital dissolution settlements, and another 40 are in the works. The method has captured the attention of some divorce lawyers--including a few prominent Southern California practitioners--although they say it’s still largely experimental.

The company claims to have originated the idea of using annuities for divorce settlements, and several family law attorneys in Southern California contacted for comment said this was the first they had heard of any such settlement method.

“In the right type of case, I think it can work,” said lawyer Robert W. Eisfelder, a family law specialist in Los Angeles. He said he has not used Ringler’s solution yet but that he would consider it in the future.

Ringler has for 15 years used annuities--a type of contract sold by life insurance companies that guarantees fixed or variable payments to someone for a specified period of time--to settle personal-injury cases. Within the last year, the company has begun using the idea to settle divorce cases, hiring the likes of Metropolitan Life Insurance Co. and Allstate Life Insurance Co. to put together the annuities.

Perhaps the biggest advantage of the program is that someone’s pension fund can be used to make a divorce settlement. Ordinarily, a beneficiary cannot touch a pension fund until the age of 59 1/2, but federal law permits exceptions in divorce cases.

Ringler typically earns a 4% commission from insurance companies for finding customers.

The company says the settlements benefit both spouses in a divorce. The payor does not have to worry about a former spouse demanding more money should the payor get a big raise, receives a large inheritance or wins the lottery. Moreover, making a lump-sum payment at the time of divorce is usually less costly than stringing out payments over many years.

The payee gains some peace of mind knowing the annuity company is legally required to make payments every month and that any need to contact the former spouse in the case of late payments is eliminated.

But there are some potentially big drawbacks too.

For instance, a spouse typically is no longer required to make spousal support payments if his or her ex-partner remarries. But with the Ringler settlements, the money is paid in a lump sum and is not recoverable later.

Those receiving the support payments pay a price for such settlements too. Ordinarily, a former spouse can seek an increase in support for an unexpected or catastrophic event such as a sharp increase in inflation or a disabling illness or injury. The Ringler settlements, however, are unalterable.

Divorce lawyers generally agree that the Ringler settlements are best suited to wealthy couples.

“You need a sizable problem before it makes any sense in my mind,” Eisfelder said. He added that it might be a good idea “where there is a long-term marriage and a significant amount of support has to be paid and the spouse who is the payor has the ability to buy that kind of a product. . . . I don’t think that most people would be able to afford it.”

Ringler concedes that a couple in their 40s, for instance, might need a net worth of hundreds of thousands of dollars for this settlement method to work, whereas an older couple, he said, would need substantially less because the number of years for the spouse to be supported is smaller.

Divorces The number of divorces finalized in Orange County has remained fairly constant despite continuing population growth. ’90 Divorces: 6,995* Population: 2,326,200 *Though June, 1990 Source: Orange County Office of Public Services