Can you keep your annuity after divorce? In many cases, yes—but “keeping it” the right way matters just as much as whether you can. The outcome depends on the annuity type, the way it was funded, the contract’s ownership structure, and how your settlement is drafted. At Diversified Insurance Brokers, we help clients nationwide understand what happens to annuities in divorce, avoid unnecessary taxes and penalties, and preserve the guarantees that often make an annuity valuable in the first place.

Annuities are different from typical brokerage accounts because they blend insurance rules with investment-style value. Two annuities with the same “account value” can behave very differently in divorce—especially if one has a lifetime income rider, a bonus credit, a market value adjustment, or a surrender schedule. If your annuity is meant to provide retirement income, a poorly structured split can permanently reduce future payouts. The goal is not just to divide an asset fairly, but to protect your long-term income plan when the dust settles.

Before you decide whether to keep your annuity, it helps to understand three practical questions divorce professionals don’t always ask early enough: What portion of the annuity is marital versus separate? What is the contract actually worth for settlement purposes (cash value, surrender value, or income value)? And what method of division preserves the most value with the least tax friction? This page walks through those questions in plain English and shows the most common strategies used to keep an annuity intact after divorce.

What “Keeping Your Annuity” Really Means in a Divorce

When people ask if they can keep an annuity after divorce, they usually mean one of two things. First, they want to keep the contract itself—same policy number, same benefits, same rider, same timeline—without splitting it. Second, they want to keep the economic benefit, even if the contract has to be divided or reissued. Those are not the same outcome, and the difference matters.

Keeping the contract intact is often ideal when the annuity has features that are difficult to replace. Examples include an older contract with favorable terms, a strong guaranteed income base, an enhanced death benefit, or a rider that was priced under older assumptions. If the contract is surrendered or split incorrectly, you can lose benefits you can’t simply “buy back” at today’s terms. In other cases, keeping the contract might be possible, but the most practical option is to keep the value and rebuild the income plan in a new contract designed specifically for your post-divorce needs.

That’s why we usually start by reading the annuity contract with a divorce lens. We look at surrender schedules, market value adjustments, rider rules, payout options, ownership and beneficiary language, and whether the annuity is qualified or non-qualified. Once those facts are clear, we can help your attorney and mediator structure the settlement so you keep what matters most: value, tax efficiency, and future income.

When You Can Keep Your Annuity After Divorce

The first step is determining whether your annuity is considered marital property or separate property. That decision depends on timing, funding source, and whether any commingling occurred. Many people assume the title on the contract decides everything, but in divorce, it’s usually the source of funds and the timeline that carry more weight.

If the annuity was purchased before marriage and funded solely with separate property, it is often treated as separate property. That doesn’t guarantee the annuity stays untouched, but it can strongly support an argument that you keep it. The same is often true when the annuity was funded with inherited money or gifts, provided those funds weren’t mixed with marital accounts in ways that blur ownership. If the annuity was purchased during the marriage with marital income or joint savings, the annuity is typically at least partially marital—even if only one spouse is listed as the owner.

What surprises many couples is that “partially marital” does not automatically mean “split the annuity in half.” Divorce settlements often allow for offsets. One spouse keeps the annuity intact while the other receives equivalent value from other assets, such as a brokerage account, IRA balance, cash savings, or home equity. This approach is especially valuable when the annuity includes income riders or benefits that would be impaired by surrender or re-issuance. If your annuity is a core part of your retirement plan, the settlement should consider not only today’s account value, but how the annuity is meant to function over time.

In practice, keeping an annuity usually comes down to one of three workable outcomes. The first is separate property treatment where the annuity stays with the original owner. The second is an offset settlement where the annuity stays with one spouse but other assets are adjusted to balance the division. The third is a structured division method that keeps the annuity benefits largely intact while still honoring the settlement terms. The “best” outcome depends on the contract features and the broader asset picture.

Qualified vs. Non-Qualified Annuities in Divorce

How your annuity is held determines what rules apply when it’s divided or transferred. This is where divorce planning often goes sideways, because a “simple” transfer can accidentally trigger taxes or penalties if the wrong process is used. The annuity being qualified or non-qualified is one of the most important facts in the entire case.

Qualified annuities are held inside a retirement account, such as an IRA. These are funded with pre-tax dollars, and they follow retirement distribution rules. A divorce settlement can allocate part of a qualified account to the other spouse in a way that preserves tax deferral, but the paperwork must be drafted and executed correctly. In many situations, the transfer is done through divorce-specific documentation and the proper custodian process so it’s not treated as a taxable distribution.

Non-qualified annuities are purchased with after-tax dollars. Tax is owed only on the gain, and the way the annuity is divided can influence how and when taxes show up. The good news is that non-qualified annuities can sometimes be transferred incident to divorce, but the rules vary by carrier and contract, and the division must be aligned with the divorce decree. If it’s mishandled, a transfer or payout can trigger taxable income when you least expect it.

If you’re not sure which one you own, don’t guess. We can help you identify whether your annuity is qualified or non-qualified by reviewing the contract and statements. It’s also helpful to read our companion guide on how annuities are divided in divorce, because the mechanics and the planning considerations overlap heavily.

Valuing an Annuity Correctly: Cash Value vs. Surrender Value vs. Income Value

One of the biggest divorce mistakes we see is valuing an annuity using the wrong number. Many annuity statements display an “account value,” but that number may not reflect what you can actually walk away with after surrender charges or a market value adjustment. Even more confusing, an annuity with an income rider often has a second number—sometimes called a benefit base or income base—that is not cash, but drives the future income calculation. In divorce, using the wrong number can create an unfair division or cause one spouse to “trade away” value they didn’t realize they had.

Account value is usually the current accumulation amount. It can be the value used for interest crediting and for some types of partial withdrawals. Surrender value is what you would receive if the contract were fully surrendered today after surrender charges and any market value adjustment are applied. Income value is not always a formal value, but it represents what the annuity can generate in future guaranteed withdrawals or payments, particularly when an income rider exists.

Why does this matter? Because divorcing couples often negotiate using paper values. If the settlement assigns the spouse keeping the annuity the full account value, but that spouse can’t access it without a significant surrender hit, the settlement may be off in practice. Conversely, if the annuity has an exceptionally strong income rider, using only surrender value might undervalue the annuity relative to its role in a retirement income plan. The best approach is to understand what the annuity is intended to do—accumulate, distribute income, or provide a death benefit—and evaluate the numbers accordingly.

When we review contracts for divorce planning, we document the contract’s surrender period, any market value adjustment language, free-withdrawal provisions, rider details, and whether the contract can be split. That creates a clearer picture for settlement negotiations and helps avoid unpleasant surprises after the divorce is final.

Common Ways Couples Keep an Annuity Intact After Divorce

There are several practical ways to keep an annuity after divorce without destroying its value. The best method depends on the contract, the tax status, and the overall asset mix. In many cases, the solution is not “split it down the middle,” but “structure it so you keep the guarantees and minimize friction.”

1) Asset offset: keep the annuity, trade other assets. This is often the cleanest solution when the annuity has valuable riders, favorable terms, or a surrender schedule that would punish liquidation. One spouse retains the annuity intact, and the other spouse receives equivalent value from other marital assets. This approach keeps the annuity guarantees in place, avoids carrier processing delays, and can reduce the risk of accidental taxable events. It’s particularly effective when there are liquid assets available to balance the division.

2) Preserve the contract and divide other retirement assets. If the annuity is a cornerstone of one spouse’s retirement plan, it can sometimes make sense to allocate more of another retirement asset (like an IRA) to the other spouse, leaving the annuity untouched. This is still an offset approach, but it uses retirement assets to balance retirement assets. The key is understanding the tax characteristics of each account so the trade is fair on an after-tax basis.

3) Carrier-approved split or reissue. Some carriers allow an annuity to be split into two contracts under a divorce decree. This can be a good option when the annuity must be divided and there aren’t enough other assets to offset. However, not all contracts allow splits, and rider benefits may not transfer cleanly. If the annuity has an income rider, splitting can sometimes reduce income efficiency or change payout options. That’s why we evaluate this option carefully before recommending it.

4) Keep the annuity but adjust future distributions. In some divorces, especially where immediate liquidation would be costly, the settlement may allow one spouse to keep the annuity and compensate the other spouse over time using other income or asset distributions. This approach requires careful coordination and is not always ideal, but it can preserve the annuity while still addressing fairness.

The common theme is that “keeping” the annuity is often about controlling the method of division. The right method can preserve guarantees, reduce taxes, and avoid surrender losses. The wrong method can permanently diminish the contract’s value and create tax friction for both parties.

Protecting Lifetime Income Benefits and Rider Features

Annuities with lifetime income riders are often the most emotionally and financially important in a divorce because they represent predictable retirement stability. These riders can create a future income stream that’s difficult to replicate with conservative investments, especially if the contract was purchased during a time when rider terms were more favorable.

If your annuity has a guaranteed lifetime withdrawal benefit (GLWB) rider, the annuity may have an income base that’s higher than the account value. That higher base can increase the future guaranteed withdrawal amount, which is why many owners want to keep the contract intact. But divorces can introduce complications—particularly if the annuity was set up as joint life income, if a spouse is named as a beneficiary, or if the contract requires certain ownership structures to preserve rider eligibility.

Keeping the annuity after divorce often requires three specific clean-up steps. First, confirm whether the rider is tied to single-life or joint-life income and how the contract defines the covered life or lives. Second, update beneficiaries to reflect your post-divorce planning. Third, coordinate any ownership changes using carrier-specific divorce documentation so the rider isn’t inadvertently terminated. These details are contract-specific, which is why we prefer to review the actual policy language rather than rely on assumptions.

If your annuity was originally designed to protect a couple’s income, a divorce may require rethinking the income strategy entirely. In many cases, you can preserve the existing annuity for your own income and supplement it with another contract designed for your updated needs. That’s where understanding current options is helpful, which is why many clients start by reviewing the landscape on our annuity rate page.

When Keeping the Annuity Isn’t Practical: Avoiding Surrender and MVA Damage

Sometimes, keeping an annuity isn’t practical because the divorce requires division and there aren’t enough other assets to offset. Other times, the annuity contract itself isn’t efficient for your post-divorce plan. In those cases, the focus shifts from “keep the contract” to “keep the value and rebuild.”

One challenge is the combination of surrender charges and market value adjustments. A surrender charge is a contractual penalty for surrendering early. A market value adjustment, explained in detail in our guide on what a market value adjustment is, can increase or decrease the surrender value depending on interest rate conditions and the contract’s terms. In rising-rate environments, MVAs often reduce the surrender value, which can make divorce-related liquidation especially painful.

If liquidation is unavoidable, one strategy is to reinvest proceeds into a contract that provides an immediate boost to offset losses. That’s where a bonus annuity can become relevant. These products can provide an upfront credit that partially offsets surrender charges or MVA impact, while maintaining principal protection and tax deferral. Bonus annuities are not a cure-all and must be evaluated carefully, but in the right scenario, they can be an efficient way to rebuild value after an unfavorable surrender.

Another option is to rebuild income with a contract designed for your timeline. Post-divorce planning often prioritizes predictable cash flow, and many people explore fixed indexed annuities with income riders as part of that rebuild. If you’re looking at that route, our resource on fixed indexed annuities with lifetime income riders provides helpful context for comparing features and outcomes.

Tax and Transfer Pitfalls That Can Break a Settlement

In divorce, it’s easy to focus on the headline number—“who gets what”—and overlook the tax mechanics that determine what each party actually keeps. With annuities, the transfer method matters. A transfer done incorrectly can convert what should be a non-taxable division into a taxable distribution. The divorce decree should clearly state the intended treatment, and the carrier should be provided the correct documentation to process the change incident to divorce.

For qualified annuities held inside retirement accounts, the process must preserve retirement status. For non-qualified annuities, the transfer must avoid triggering gain recognition when possible. The risk is highest when a spouse tries to “cash out” their share quickly, or when the decree is drafted without specifying how the annuity will be handled at the carrier level. That’s why we encourage coordination between the attorney, the carrier, and an annuity advisor who understands divorce-related processing rules.

Another common pitfall is ignoring the difference between principal and gain in a non-qualified annuity. When withdrawals occur, the taxable portion may be considered first depending on the contract’s tax rules, which can create unintended tax outcomes if someone withdraws funds as part of the settlement. A better approach may be to transfer ownership properly or offset with other assets so the annuity can continue growing tax-deferred.

Finally, beneficiary updates are not optional. Divorce decrees often require certain changes, and many people want to align beneficiary planning with their updated estate goals. If you’re keeping an annuity after divorce, it’s smart to review how annuities pass to heirs, which is why our guide on annuity beneficiary death benefits pairs well with this topic.

Post-Divorce Income Planning: Rebuilding Stability with the Right Mix

After divorce, your financial plan often shifts from “growth and accumulation” to “stability and control.” Annuities can play a role in both, but the right role depends on your age, income needs, risk tolerance, and the asset mix you’re working with after the settlement. Some clients keep the annuity they already have because it provides predictable income. Others keep the annuity value and reposition into a contract that better fits the new reality.

For people who need predictable retirement cash flow, an annuity that supports guaranteed lifetime withdrawals can be helpful. For people who want principal-protected growth, fixed annuities or MYGAs can create stable, time-defined returns. If you’re comparing shorter-term options, our page on short-term MYGA annuities is a useful reference point for understanding how terms and rates compare.

Post-divorce planning is also a good time to review how retirement accounts interact with annuities. Many people receive IRA assets in divorce and want to know what to do next. If that’s you, our overview of IRA annuity options can help you understand what it means to hold an annuity inside an IRA and how distributions and income planning work.

In addition to income planning, some clients use divorce as a trigger to revisit long-term care planning. If your plan relied on a spouse or joint resources, you may want a new strategy that protects your independence. For that, a resource like single-pay long-term care insurance can be a good starting point for understanding how one-time funding can secure benefits.

How Diversified Insurance Brokers Helps During Divorce-Related Annuity Decisions

We’re a fiduciary, family-owned agency licensed in all 50 states, and we work with clients who want clarity before making big retirement decisions. Divorce is one of the most financially sensitive transitions a person can go through. When annuities are involved, small mistakes can create large long-term consequences—lost guarantees, avoidable taxes, surrender penalties, or income reductions that show up years later.

Our role is to bring annuity-specific clarity to the divorce process. We review the contract details that matter, outline the trade-offs of each division method, and help you compare what it looks like to keep the contract versus repositioning into a new strategy. We can also help your attorney understand carrier processing requirements so the settlement is drafted in a way the carrier can actually implement without delay or confusion.

We also compare options across the market. If your plan involves replacing an annuity that is being divided, we can show you how current products compare for your goals—whether you’re prioritizing rate, income, liquidity, or beneficiary features. Many clients begin that comparison by using our current annuity rates resource, and then narrowing the options based on their timeline and objectives.

Related Topics to Explore

• How Annuities Are Divided in Divorce
• What Happens to Your Annuity in a Divorce?
• Current Bonus Annuity Rates
• What Is a Market Value Adjustment?
• Annuity Free Withdrawal Rules
• Annuity Beneficiary Death Benefits
• Best Short-Term MYGA Annuities
• Best Fixed Indexed Annuities with Lifetime Income Riders
• What Is an IRA Annuity?