Life Insurance

A Guide to Life Insurance and Divorce

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Divorce can be personally devastating — especially if there are children involved. It's also bound to cause upheaval in your finances as well as your emotions. But having a handle on what to expect beforehand if you're considering divorce or in the process of divorcing can give you some clarity during an otherwise typically challenging time.

One key question to address during the process is, what happens to life insurance policies in divorce?

Divorce and life insurance policies don't seem like they'd go hand-in-hand, but you'll want to spend some time understanding how to handle them.  Here, we'll cover what questions to ask about life insurance and divorce, as well as steps you may want to take to ensure your policy still covers you adequately following your separation.

Life insurance as an asset

Is life insurance an asset in divorce? At some point during your divorce, you'll need to list your assets and present an accurate picture of your financial situation. There may be state laws governing what and how you need to report this, but generally, if you have whole life or another type of permanent policy, you'll need to declare the cash value portion of the policy as an asset. 

However, term life insurance may not be treated as a financial asset. Thus, it won't be subject to any division of finances occurring as part of the life insurance divorce decree. This doesn't mean that it shouldn't be considered when the divorce decree is drawn up. You'll undoubtedly want to change the policy to reflect your new marital situation.

Will I still need life insurance after the divorce?

Let's first examine the situation of a couple with no children: In this case, there's often a policy on the primary breadwinner, who may also be the policy owner — i.e., the one who pays the premiums. 

This policy exists so the spouse who isn't the primary breadwinner is protected from financial hardship if the breadwinner passes away.

If you're the breadwinner, you may not wish to cover your former spouse with life insurance in the divorce settlement, in which case you could surrender the policy or sell it. If you do wish to continue coverage following divorce, some states require you to re-designate your former spouse as the beneficiary after the divorce. Ask your lawyer if this is the case in your state.

If you're not the primary breadwinner, be aware that you may lose your place as the beneficiary of your former spouse's policy following a divorce. Thus, you'll need to take other measures to ensure your financial security, such as asking your lawyer to advocate for an alimony settlement.

What happens to life insurance when there are children?

Life insurance and divorce get more complicated with children in the picture. Be sure to familiarize yourself with our online life insurance guide for parents. Being informed is especially crucial for the spouse who gains primary custody over the children. For this person, while the children are at home, there should be a life insurance policy that protects them, providing enough money to feed, house, and educate them until they are independent. 

When determining the size of this policy, the custodial parent should be sure to include income from alimony and child support.

Who pays for this policy? That can be negotiated during the settlement, but a custodial parent who isn't sure if they can depend on their ex-spouse to pay premiums regularly should consider owning the policy themselves. 

Likewise, a non-custodial parent may want to take out a policy on their ex-spouse since they may be required to care for the children in the event of the custodial spouse's death.

Insuring an ex-spouse

Can you have life insurance on an ex-spouse? Yes, if you have a financial reason for doing so, you can. Usually, this is related to alimony or child support payments. 

For example, you may ask, can I keep life insurance on my ex-husband? If you financially rely on your ex-husband's child support payments of $600 a month, and you're the custodial parent, you may take out a policy that would allow you to receive roughly the same amount each month if he should pass away.

Your ex-spouse will need to agree to this arrangement and will have to go through the underwriting process so you can obtain this coverage, which can be arranged as part of the divorce life insurance requirements. You, your ex-spouse, and the lawyers will need to determine policy type, length, and payout amount. An excellent place to begin is by reviewing our plans at Ethos Life and getting a quote.

Changing beneficiaries

Can you change your life insurance beneficiary during a divorce? You'll probably be changing your soon-to-be ex-spouse's name on bank accounts, utility bills, and more during your divorce. But when it comes to beneficiaries, check with your lawyer first. Some states, such as Massachusetts, prohibit parties involved in a divorce from making changes to beneficiaries until the final settlement is determined.

The other consideration is whether your policy has a revocable or irrevocable beneficiary. You can't change the beneficiary during the policy's life with the latter. 

Meanwhile, in some states, an ex-spouse's designation as the beneficiary is automatically revoked at the time of a divorce. It would need to be re-designated following the divorce to remain in effect as before. 

It's essential to understand and proceed in accordance with the complexities of state divorce laws. Don't hesitate to talk to the professionals you've hired to help you through the process. You deserve all the support you can get.

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