Getting a divorce sucks. Balancing your day-to-day responsibilities while also separating your finances, dealing with a new social life, and supporting your kids through the process can be very painful without proper planning.
As if that isn’t enough, you also have to worry about your life insurance, either by managing your existing policy, or even applying for a new policy altogether depending on how things shake out.
Properly managing your life insurance needs through your divorce is a smart way to ensure that you and your former spouse remain financially secure and avoid bitterness down the line, no matter what adventures your new lives bring.
But, without the proper planning, it can also reopen old wounds years down the road. In this guide, you’ll learn all you need to know in order to find a policy that fits your needs and how to easily buy life insurance online without adding more stress to your life.
Part 1: If you have life insurance already…
If you’ve got a life insurance policy active on yourself already, going through your new finances is a crucial step in finding your financial footing. Odds are that your needs aren’t the same as they used to be.
Things to think about when checking your existing life insurance policy:
- What kind of life coverage do I have? What parts of my policy is my former spouse entitled to?
- Who are my current beneficiaries? Is my former spouse still a beneficiary?
- How much will my former spouse and I each be contributing to childcare, college tuition, and other family costs?
- How much coverage do I have and how much does it cost? Is this still the right policy for my life?
» Learn more: Your Life Insurance Beneficiary Review Guide
What kind of life insurance do you have?
The type of life insurance coverage you have plays a big role in the divorce process. If you have a term or universal life insurance policy that doesn’t accumulate cash value, the policy doesn’t always need to be split.
If you have permanent life insurance that accumulates a cash value over time, that cash value is considered to be a financial asset. This means you’ll need to find an agreement during your divorce to split the cash value of the whole life policy with your ex.
Even if you have term life insurance, your policy might still be tied up in the divorce proceedings.
For example, if your divorce requires you to provide your former spouse with alimony payments, or if you have kids and will be paying child support on them while your ex is the primary beneficiary, your divorce agreement may require you to keep your ex listed as a beneficiary.
If you and your now-ex spouse don’t have children together, and you won’t need to pay alimony, there aren’t that many reasons why your former spouse would need to be a beneficiary on your term life insurance.
Reviewing Your Beneficiaries
When you apply for a life insurance policy, you designate your beneficiaries (the person or people who will receive the payout) up front before the policy goes into effect.
For many married couples, this person is often their spouse or soon-to-be spouse.
However, 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 (such as divorce), it’ll still go to the beneficiary they chose during their application unless they take action to update the beneficiary on their term life insurance policy.
For example, if Harry married Sally and got a life insurance policy on himself during their marriage, odds are that he would choose Sally to be the policy’s primary beneficiary.
If Harry and Sally split up a few years later, and Harry dies shortly after that (without changing his beneficiary), in most cases, Sally receives Harry’s face amount. This would be true even if Harry married someone else who is dependent on his financial support in the interim.
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.
» Learn more: Your Life Insurance Beneficiary Review Guide
However, divorce throws a few legal wrinkles into the process—especially if hearings are required.
Beneficiaries During a Divorce
The main things that make changing your beneficiaries complicated during a divorce are the temporary restraining orders that are put into place as soon as the petition for divorce is filed.
These are placed on both spouses in order to protect their rights and property, and they lower the possibility of one spouse bamboozling the other and leaving them with nothing.
Regardless of how amicable your split may be, these orders lock your finances 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
- Taking a louisville slugger to both headlights, etc, etc…
Like most of your shared finances, life insurance policies are locked down by temporary restraining orders during the divorce proceedings. These prevent the policy’s owner from editing the beneficiaries of their insurance policy without taking it through their divorce hearings first.
The upshot of this is that in situations where the couple will still be financially invested in each other even after divorce, like when one spouse pays the other child support, the primary caretaker will have the income protection that life insurance is designed to give them.
For example, let’s say that Harry and Sally get divorced, and Sally becomes the primary caregiver for their children. Harry will be paying child support regularly, which is income that Sally will rely on to help take care of their kids.
Because Sally is still dependent on regular income from Harry, it may be ruled during the divorce that Harry needs to keep Sally as a beneficiary on his life insurance to replace that child support money if he were to pass away. The temporary restraining order on his policy prevented Harry from removing Sally from the policy on his own.
Even in situations where there aren’t child support payments to worry about, 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 divorce.
After the Divorce
If no restrictions have been placed on your life insurance policy during the divorce hearings and the temporary restraining orders have been lifted, you’re in the clear!
A policy owner is free to change the beneficiaries of their policy normally by submitting a beneficiary change form to their insurance carrier.
The insurance advisors at Quotacy recommend submitting the paperwork for a beneficiary change immediately after your divorce is finalized, barring any limitations and restrictions placed on doing so during the hearings.
This is an incredibly important step.
If you never take your former spouse off your policy, there’s nothing stopping them from making a claim on the payout once you’re gone. This can start a painful legal dispute for your surviving family members after your death, and it will stall the policy payout when your family needs it most.
Note: Some states have laws automatically revoking an ex-spouse as beneficiary. If you want to continue to name an ex-spouse as a beneficiary (maybe to take care of child support obligations, or for other reasons) you may want to complete a revised beneficiary designation form, listing your ex-spouse as the beneficiary again after the divorce is final.
In addition, any plans through your employer are subject to the Employee Retirement Income Security Act (ERISA) which trump state laws. After your divorce, be sure to make the proper written changes if you wish to remove your ex-spouse as beneficiary from group life insurance policies or 401(k) plans.
Your New Financial Needs
After a divorce, your life will probably look a lot different than it was while you were married. You could need to find a new home, you might move across the country to a new job, and you may not have the same people relying on your income.
If you have a life insurance policy, check in on it to see if it matches your new needs. If you’re not in the same house, you might not need the same mortgage protection your old policy offered.
If you won’t be sending kids child support money, you might not need to have a policy in place to help put them through college.
If your life insurance policy is giving you more coverage than you need, it might be time to downsize. Once you settle into your new normal, check out our needs calculator to see how much life insurance will fit your life.
If you’d like to apply for a new policy, run a quote and we’d be happy to help you.
» Learn more: Managing Finances After a Divorce
» Calculate: Life insurance needs calculator
Part 2: If you need new life insurance…
Covering Alimony and Child Support
Sometimes during a divorce, one spouse may need to provide the other with regular income so that they can maintain their lifestyle. A few typical examples are:
- Alimony payments, meant to help the financially-dependent spouse maintain the lifestyle they have grown accustomed to.
- Child support, which helps cover child care costs and other expenses associated with being a full-time parent.
The spouse that gets these payments will rely on them as income, and if the spouse paying were to pass away, it would be difficult for the recipient to maintain their standard of living.
This means that a divorce decree may also require a life insurance policy to be put in place on the spouse paying alimony and child support, which will provide an equal financial backing to the other in case they passed away first.
You can use an affordable term life policy to guarantee the payment of either (or both) of these types of support after your divorce, along with covering other expenses like the cost of your children’s future college education, for example.
During the divorce proceedings, both parties will typically come to an agreement about how much life insurance will be required, which makes the process of shopping around for coverage that much easier.
Our advisors have worked with many people who are either preparing a divorce decree or are buying a term life policy after their divorce. Even though life insurance is a mandatory part of the divorce process, it’s still important to get the best prices possible, and that’s where Quotacy’s agents shine.
No matter where you are at in your divorce process, we’d be happy to help you make the best transition possible.
About the writer
Eric started in Quotacy's sales department, but moved to marketing after helping hundreds of people through their life insurance buying journey. Aside from writing about buying life insurance, he also edits Quotacy's monthly newsletter, runs our YouTube channel and produces Real Life, our podcast. Eric lives in Minneapolis, where his coworkers are trying to convince him to take his humor into the spotlight. Connect with him on LinkedIn.