Getting divorced is never easy. Splitting your finances, possessions, and even the custody of your children can be a tedious and grueling process that will leave you emotionally drained. During the hustle and bustle of this transition period, long-term obligations like life insurance often go unnoticed, which can reopen old wounds down the road without proper planning.
There are many details to sort out during the divorce process, one of them being life insurance. Typically life insurance is in some way connected to your spouse and you will need to determine what changes need to be made to make sure you are covered for the future. Here are two factors to consider when it comes to life insurance after divorce.
When you apply for a life insurance policy, you designate your beneficiaries (the person or people who will receive the payout of a policy when you die) up front before the policy even goes into effect. This means that if something happens down the line that causes the owner of a policy to not want their initial beneficiary to receive their death benefit, it’ll still go to the beneficiary they chose during their application unless they take action to edit the policy.
Normally, changing the beneficiaries of a life insurance policy is fairly simple – it’s just a matter of getting in touch with the insurance carrier and submitting a quick form with your new beneficiary details. With a little help from your agent or customer service representatives with the carrier, you can submit a request for a beneficiary change and have it take effect within a few days.
However, divorce throws a few legal wrinkles into the process, especially during hearings.
Even in situations where the divorcees won’t be financially invested in one another, during divorce hearings, it is likely that the policy owner will need to either get direct consent from the spouse being removed from the policy or a ruling in their favor in order to make a beneficiary change during the proceedings.
During the Divorce Process
The primary factor that complicates the beneficiary change process is the Temporary Restraining Orders that are put into place as soon as the petition for divorce is filed. These Temporary Restraining Orders are placed on both spouses in order to protect the rights of both parties and mitigate the possibility of one spouse bamboozling the other and leaving them with nothing.
TROs lock down and prevent a lot of shady actions that jilted spouses might try during a divorce, including:
- Packing up the kids and moving to another state overnight
- Cleaning out joint bank accounts
- Cancelling home or auto insurance policies
- Taking out loans using jointly-held assets or collateral
- Removing funds from one partner’s retirement account
- Breaking headlights, slashing tires, etc. etc.
Life insurance payouts are restricted by TROs specifically because they limit the ability of spouses to edit the future payout or beneficiaries of their insurance policies to try and cut the other spouse out during their divorce hearings.
These orders are in place for situations where the couple will still be financially invested in each other even after divorce, such as a couple with a child splitting up. In that situation, one parent will most likely be the primary guardian. If the insured parent isn’t the primary caretaker but will be paying child support throughout the child’s life, the parent who was slated to receive the payout of the policy may very likely have a case to keep the benefits of a policy. After all, if the insured parent dies, the child support payments would also stop and place an increased financial burden on the surviving parent.
Even in situations where the divorcees won’t be financially invested in one another, during divorce hearings, it is likely that the policy owner will need to either get direct consent from the spouse being removed from the policy or a ruling in their favor in order to make a beneficiary change during the proceedings. It’s pretty likely that if the policyholder’s ability to alter a policy is ruled against in divorce court, they’ll be unable to change the beneficiaries of their policy in the future without a legal challenge.
After the Divorce Process
After the divorce is finalized, and if no restrictions have been placed on where the face amount of the policy can go, the policy owner can change the beneficiaries of their policy normally by submitting a beneficiary change form to their insurance carrier.
Most experts recommend submitting the paperwork for a beneficiary change immediately after the divorce is finalized, barring any limitations and restrictions placed during the hearings. This is crucial, because when policyholders intend, but never actually got around to requesting a beneficiary change to take a former spouse off of the policy, that creates legal wiggle room for the former spouse to make a claim on the policy and start an unwanted legal dispute after the death of the insured.
2. Future Alimony and Child Support
Alimony payments are to help the dependent spouse maintain the lifestyle they have grown accustomed to. Child support helps cover child care costs and other expenses associated with being a full-time parent. If the person ordered to provide these payments to their ex-spouse were to pass away it could create a financial burden.
If you don’t already have life insurance in place and are to receive alimony or child support after your divorce, you may want to consider protecting this income with a life insurance policy. Just as you may have a policy to protect your loved ones financially if you were to die, you need to protect this income as well. Setting up a policy on your ex-spouse with you as the policy owner is a great option to protect that income. Make sure that the policy is adequate enough to replace the money you would be receiving for alimony and/ or child support.
While there may be other, more pressing concerns to deal with after a divorce, taking a few minutes to tie up the loose ends in your postmortem support plan is a relatively painless way to relieve a few future headaches for your family and make sure that everyone gets what they deserve after you’re gone.
Photo Credit to: Bogdan Migulski
About the writer
Eric moved from sales to communications at Quotacy. His writing is informed by his experience guiding hundreds of people through their own life insurance buying journey. Eric lives in Minneapolis, where his coworkers are trying to convince him to start his own podcast, do stand-up, or take his humor into the spotlight. Connect with him on LinkedIn.