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Allianz Life Insurance Company of North America Allianz Life Insurance Company of New York Understanding the financial aspects of divorce Presented by [Producer Name] [Producer Title] [Producer Company] ENT-1723 -N (R-5/2017)

Please note [Producer name, producer company name] is not an employee of Allianz Life Insurance Company of North America (Allianz), Allianz Life Insurance Company of New York (Allianz Life® of NY), or their subsidiaries or affiliated companies. This material is prepared by Allianz Life Insurance Company of North America and its affiliate Allianz Life Insurance of New York for use by financial professionals. This material is prepared by Allianz Life Insurance Company of North America (Allianz) and its affiliate Allianz Life Insurance of New York (Allianz Life® of NY) for use by its financial professionals. 2

Before we begin This presentation is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America (Allianz), Allianz Life Insurance Company of New York (Allianz Life® of NY), and Allianz Life Financial Services, LLC, their affiliated companies, and their representatives and employees do not give legal or tax advice. Allianz, Allianz Life of NY, and Allianz Life Financial Services, LLC are affiliated companies. • Not FDIC insured • May lose value • No bank or credit union guarantee • Not a deposit • Not insured by any federal government agency or NCUA/NCUSIF 3

Seeking information about divorce § Contemplating a divorce § Going through a divorce § Already divorced § To support a friend or family member § Education 4

Divorces and annulments Annual divorce rates 970 000 920 000 870 000 820 000 800, 909 770 000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 CDC/NCHS National Vital Statistics System, 2016. 5

Divorce rates NO-FAULT DIVORCE 1970 1985 causing divorce rates to increase at that time ¹ National Health Statistics Reports, Number 49, March 22, 2012. 6 RATES Marriage and divorce percent change from 2000 to 2015 -16% -23% Marriage Divorce

Agenda 1. Division of assets 2. Impact to benefits 3. Other considerations 4. Next steps 7

1 Division of assets

Documenting assets § Document your current budget and potential future budgets § Compile financial documents § Locate all tax returns, W 2 s, etc. § Gather legal documents Bank statements (checking and saving) Pension and retirement account statements Annuity statements Social Security numbers and statements § List personal possessions (jewelry, furniture, boats, etc. ) Mortgage documents § Document safe-deposit box and home safe contents Brokerage accounts § Record any business documents § Provide updated account values and other information to your attorney Life insurance policies/annuity contracts Beneficiary forms Wills and healthcare directives Trust documents Car titles Not an inclusive list 9

Dividing assets Common marital assets Generally, no gain or loss is recognized on transfer of property between spouses if incidental to a divorce. Family home Annuities 10 Retirement arrangements

Dividing assets Family home 1. One spouse keeps the house and the existing mortgage 2. Sell the house and divide the proceeds 3. Buy out the other spouse, by refinancing 11

Dividing assets Family home Important financial aspects to consider § No step up in basis when transferred incident to divorce or when one spouse buys out the other Original purchase price plus any home improvements (not maintenance) § Sale (not buy out) proceeds would be taxed at capital gains rates § Capital gains exclusion for a principal residence - Must reside in home for at least two of the past five years. - Must not have used the exclusion for a sale or exchange that occurred during the two years preceding the sale or exchange. - 2017 exclusion $250, 000/single and $500, 000 /married. - Exclusion is based on filing status at the time of the sale. You are encouraged to consult your tax advisor and attorney. 12

Dividing assets IRAs Retirement arrangements § Qualified domestic relations order (QDRO) not needed; IRA provider may ask for divorce decree or separation instrument to specify how IRA is to be divided. § An IRA transfer pursuant to a divorce specified in a divorce decree allows an IRA to be transferred income-tax-free to a new IRA. § Individual retirement annuities may add complexities such as differing values, withdrawals or surrender charges, and various contract features. You are encouraged to consult your attorney. 13 Note: If a payment is made directly to the ex-spouse of the IRA owner rather than doing an IRA transfer, the IRA owner is generally responsible for any income taxes related to the distribution.

Dividing assets QDRO Retirement arrangements § § § § Qualified Domestic Relations Order (QDRO) A required order in a divorce agreement when dealing with qualified retirement plan funds. Establishes a spouse’s legal right to receive a designated percentage or dollar amount of their ex-spouse’s qualified plan account balance or benefit payments. Only applies to plans that are tax-qualified. Does not apply to military or government pensions, which are governed by other laws. Alternate payee (spouse benefiting due to divorce) may have options not available to the plan participant. Plan Administrator of qualified plan is responsible for determining if the order issued by the court meets the requirements to be a QDRO. The QDRO must comply with plan document provisions. Recipient of the qualified plan money is generally responsible for related income taxes when received in form of a pension, annuity or withdrawals. You are encouraged to consult your tax advisor and attorney. 14

Dividing assets Some examples of plans divided by a QDRO Defined contribution plans: Defined benefit plans: Money purchase pension plans Traditional defined benefit pension plans Target benefit pension plans Profit sharing plans 401(k) plans Stock bonus plans Employee Stock Ownership Plans (ESOPs) You are encouraged to consult your attorney. 15 Cash balance pension plans Note: Using a defined benefit plan in a QDRO can be complex.

Dividing assets 403(b) Tax sheltered annuity (TSA) Retirement arrangements § Qualified domestic relations order (QDRO) rules apply - In some cases, the plan administrator will need to review DRO to determine if it’s a QDRO - In other cases, the insurance company may need to review the DRO § Since the owner of a TSA is the individual and not the plan, complexities of annuities apply here as well You are encouraged to consult your tax advisor and attorney. 16

Dividing assets – annuities Nonqualified annuities § Liquidating the nonqualified annuity could result in a surrender or withdrawal charge and a 10% federal additional tax for early withdrawal prior to age 59½ to the owner. § Check with the insurance company to see if annuities currently paying income benefits can be divided. In many cases they cannot. § May be desirable if lifetime income is important to you. § You may also want to check to see how much basis and gain are in the contract. Since nonqualified annuities are funded with after-tax funds, only distributions of gains are subject to income tax. § Nonqualified annuities can be complex to divide due to differing values, withdrawal or surrender charges, and various contract features. § A change of ownership of a nonqualified annuity from one spouse to the other, or a change of owner from one ex-spouse to the other, pursuant to a divorce, is a nontaxable transfer § Additional considerations apply if the contract has been annuitized. You are encouraged to consult your tax advisor and attorney. 17

Dividing assets Separate property Includes assets that are: § Brought into the marriage § Inherited during the marriage § Received as a gift during the marriage You are encouraged to consult your tax advisor and attorney. 18 Depending upon the state, comingled separate property may be treated as separate or marital property.

2 Impact to benefits

Social Security A divorced spouse may be entitled to a 50% Social Security retirement benefit on an ex-worker’s record if they had been married for at least 10 years Worker ex-spouse: Claiming ex-spouse: § Entitled to receive Social Security benefits § Not currently remarried § Is age 62 or older § Age 62 or older (under age 62 if caring for a qualifying child) § Has applied for retirement benefits § Own benefit is less than spousal benefit OR § If working spouse is qualified but has not applied - divorced at least 2 years You are encouraged to consult your tax advisor, attorney, and Social Security representative. 20

Social Security The worker/ex-spouse: § Does not diminish ex-spouse benefits or those of new spouse § Confidential and will not know The claiming ex-spouse: § Will need ex-spouse’s Social Security number, proof of marriage, and final divorce decree § Will receive own benefit or ex-spouse benefit, whichever is greater, but not both § Earning limits apply You are encouraged to consult your tax advisor, attorney, and Social Security representative. 21

Social Security § Benefits for claiming spouse may be reduced if taken prior to own full retirement age § For retirees who were age 62 or older in 2015, both divorced spouses can file restricted application for spousal only benefits at full retirement age - Receive 50% of ex-spouses benefits. Switch to your own benefit that has earned delayed retirement credits of 8% per year. This is not an option for married couples. You are encouraged to consult your tax advisor, attorney, and Social Security representative. 22

Social Security If the worker ex-spouse is deceased (married at least 10 years), the claiming spouse (surviving divorced spouse) is eligible for the same survivor benefits as a widow/widower as early as age 60, or full benefits at full retirement (which is currently age 65) § If claiming spouse is caring for a qualifying child, the length of marriage rule would not apply. § Benefits may be reduced if taken prior to full retirement age You are encouraged to consult your tax advisor, attorney, and Social Security representative. 23

Social Security Impact of remarriage § Spousal benefits would be terminated upon remarriage § Survivor benefits would be terminated only if remarriage occurs prior to age 60 (age 50 if disabled) You are encouraged to consult your tax advisor, attorney, and Social Security representative. 24

Health insurance Consolidated Omnibus Budget Reconciliation Act (COBRA) § Divorce (or legal separation) is a qualifying event for COBRA if it results in loss of coverage of a qualified beneficiary. § Provides 36 months of continued health insurance coverage § Typically will be required to pay full cost (employee plus employer portions), plus administration fees § Plans that are continued through COBRA may not offer coverage in other states § May benefit more from having own individual policy 25 The Health Insurance Marketplace is a helpful resource when seeking individual coverage – even outside of the open enrollment period

Health insurance Health Insurance Marketplace § Some states utilize the website for enrollment while other states route customers to their own sites § Pre-existing conditions cannot impact coverage options or costs § Divorce qualifies for a special enrollment period 26 www. healthcare. gov Factors that impact pricing: - State of residence Plan category selected Age Family situation Smoking (depending upon the state) - Subsidies are available to those with lower incomes

Health insurance Health and medical savings accounts § IRA type rules apply § Dividing accounts or transferring to ex-spouse’s health savings account (HSA) or medical savings account (MSA) does not trigger income taxation 27

3 Other considerations

Life insurance can be utilized to cover any future child and/or spousal support payments Hypothetical example 1: § § Spouse B (who receives the child or spousal support payments) owns the life insurance policy insuring Spouse A (premium payor) When part of the divorce settlement and provided certain other requirements are met, premiums paid by Spouse A are treated like alimony for tax purposes Tax deductible premium payments A B Insured (Premium payor) Owner Life insurance contract Taxable spousal support This hypothetical example is for illustrative purposes only and does not represent actual clients. You are encouraged to consult your attorney. 29

Life insurance Hypothetical example 2: A § Spouse paying spousal support could own the life insurance policy § Court-ordered premiums paid by the ex-spouse are not treated like alimony for tax purposes B Owner and premium payor Life insurance contract Irrevocable beneficiary § Court order should address who has access to any available cash value This hypothetical example is for illustrative purposes only and does not represent actual clients. You are encouraged to consult your attorney. 30

Life insurance Additional considerations § Apply for a new, or completely transfer (irrevocably assign) an existing policy prior to divorce being final – Transferring or applying for the policy in advance is important to ensure it is obtainable and is completed § A life insurance policy generally cannot be divided into two policies so it may be necessary to divide other assets You are encouraged to consult your attorney. 31

Beneficiary review § Review and, if desired, change beneficiary designations on all contracts including life insurance § Beneficiary designations supersede the will Contracts to consider: IRAs 401(k) and other qualified plans Nonqualified annuities Life insurance 1 1 Your beneficiary designation may be the most important part of your life insurance policy. Become familiar with your own statespecific laws. For example, South Carolina law may revoke a (former) spouse as beneficiary if you were divorced or your marriage was annulled in that state. If this affects you, please review your beneficiary designations with your estate planning attorney immediately and contact your financial professional for assistance. You are encouraged to consult your attorney. 32 Employer-provided life insurance

Legal documents Revisit other legal documents § Consider establishing a new power of attorney (POA) for each existing POA § Review or establish health care directives - Name a new representative (health care agent) within your health care directive § Review will or trust documents - Create a new will and/or establish appropriate trusts Note: Again, you should be familiar with your own state-specific laws You are encouraged to consult your attorney. 33 Health care directive names can vary for example, called Advanced Medical Directive in some states

Taxation – spousal support § Spousal support is taxable to the recipient and tax deductible to the payor Following criteria may need to be met: Must be paid in cash, check, or money order Must be part of the divorce settlement Must not reside in the same household May not file a joint tax return No liability to make payments after the death of the recipient spouse No portion may be considered child support You are encouraged to consult your tax advisor and attorney. 34

Taxation – child support Child support is not taxable to recipient nor is it tax deductible to payor § Considerations for the child exemption may include: - Custodial parent typically has the right to claim exemption for children Custodial parent may transfer exemption to noncustodial parent (IRS Form 8332) Custodial parent may still file head of household even if not claiming exemption (phase-outs apply) § A dependent care tax credit is also available for the custodial parent who pays child care expenses so they can work. This credit is not available to a noncustodial parent. § A child tax credit of $1, 000 per child under age 17 is available to one parent (phase-outs apply) You are encouraged to consult your tax advisor and attorney. 35

Final considerations Equitable settlement isn’t always an equal settlement § Changes in tax brackets as a result of a divorce can be a big factor. Consider with a tax advisor: - Capital gains Ordinary income Federal additional tax for early withdrawal and what portion of withdrawals will be taxed § For annuities, consider if any surrender or withdrawal charges will apply, how contract features will be affected by a division, and which contract values will be used. § Assess how net worth will change over time, including the future tax treatment of assets. You are encouraged to consult your tax advisor and attorney. 36

4 Next steps

How I can help you? § Assist with establishing new financial goals and strategies § Point out important considerations so you can make an informed decision § Assist you during your meetings with other professionals 38

Summary 1. Division of assets 2. Impact to benefits 3. Other considerations 4. Next steps 39

In closing This presentation is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America and Allianz Life Insurance Company of New York, their affiliated companies, and their representatives and employees do not give legal or tax advice. You are encouraged to seek advice for your personal situations from your tax and legal professionals. Purchasing an annuity within a retirement plan that provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefit. An annuity should be used to fund a qualified plan based upon the annuity’s features other than the tax deferral. All annuity features, risks, limitations, and costs should be considered prior to purchasing an annuity within a tax-qualified retirement plan. All annuity contract and rider guarantees, or annuity payout rates, are backed by the claims-paying ability of the issuing insurance company. They are not backed by the broker/dealer from which this annuity is purchased, by the insurance agency from which this annuity is purchased, or any affiliates of those entities, and none makes any representations or guarantees regarding the claims-paying ability of Allianz Life Insurance Company of North America or Allianz Life Insurance Company of New York. Guarantees do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions. Products are issued by Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 55416 -1297. www. allianzlife. com. In New York, products are issued by Allianz Life Insurance Company of New York, 28 Liberty Street, 38 th Floor, New York, NY 10005 -1422. www. allianzlife. com/new-york/. Variable products are distributed by their affiliate, Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416 -1297. www. allianzlife. com. Only Allianz Life Insurance Company of New York is authorized to offer annuities and life insurance in the state of New York. 40

Thank you. Questions?