4 Things You Should Know About Life Insurance and Divorce
As a couple, you’ve purchased life insurance as part of a comprehensive financial plan. Sadly, you and your spouse have decided to part ways. Over the years our firm has found that clients needed to be apprised of the following considerations:
1. A Life Insurance Policy May Be a Marital Asset
The short answer is, maybe. It depends upon whether your life insurance policy is a Whole Life policy or a Term Life policy.
Whole Life policies have cash value and are considered part of your net worth. During the divorce proceedings, a whole life policy must be listed among the marital assets to be divided, and it could be cashed out and divided equally. Universal Life policies are similar, being a hybrid of whole life and term and often having a flexible premium option.
Term Life policies have no present cash value and therefore are not marital assets. However, such a policy may figure otherwise in your divorce. The Court may order you to maintain life insurance, or, you may wish to maintain life insurance for the benefit of your children.
2. Do I Need to Change the Beneficiary of My Life Insurance Policy after Divorce?
The answer is no, you don’t need to - but you might want to. Most married people list their spouse as beneficiary, which is important where the insured is the breadwinner and the beneficiary is financially dependent upon the insured. However, after divorce one might not want their ex-spouse to receive money upon their death. If your life insurance policy is not part of the final divorce decree, you have the freedom to change the beneficiary any time or even cancel the policy.
3. Is There a Court Order to Maintain Life Insurance?
A family law judge will often order the party paying child support and/or alimony (also called spousal support) to maintain life insurance as part of the final divorce decree. This serves to protect that income stream for the custodial parent and the children.
One wrinkle that often arises is when the insured spouse stops paying life insurance premiums, and the policy is canceled without their ex-spouse/beneficiary or the Court being made aware. This situation can be avoided in one of three ways:
- Give the insurance company the divorce decree with instructions to notify the beneficiary if there is a change in the policy, or if the premiums are not paid.
- The beneficiary spouse can protect themselves by being the policy owner and making the payments.
- The Court can order that the amount of the life insurance premiums be added to the alimony and/or child support as part of the final divorce decree, and the beneficiary pays the premium.
4. Can Life Insurance Protect My Children?
If divorce makes you a single parent, you may need adequate life insurance on yourself to protect your children, whether your ex-spouse is consistent in making alimony and/or child support payments or not. How much, what type, and the term of the insurance depends upon the amount of your income and the number and ages of your children. There are several free life insurance calculators online, or you can contact your carrier for assistance.
If you own life insurance and are contemplating divorce, the most important thing to do is change nothing until you consult with your divorce attorney. But rest assured that it is very likely your life insurance situation will be impacted by your divorce.
About the Author
Chad G. Boonswang, Esq. is a litigation lawyer based in Philadelphia, PA who graduated from the University of Pennsylvania and Villanova University Charles Widger School of Law. Mr. Boonswang founded his practice in 2002 and has recovered tens of millions of dollars on behalf of his clients from life insurance claims and catastrophic injury cases.
Mr. Boonswang has been selected as an ASLA 2014, 2015, 2016, 2017, and 2018 Top 10 Litigation Lawyer and year after year has earned a 10.00 “Superb” rating on Avvo. He also maintains an active blog on current events and issues in life insurance law and policy.
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