Divorce Life Insurance

Eric Van Haaften Estate Planning with Life Insurance

Navigating a divorce is tough, and understanding the role of life insurance in divorce settlements can be complex.

We will explore why purchasing a new policy is crucial for safeguarding alimony and child support payments, focusing on both term and permanent policies.

Next, we’ll guide you through the legal process of dividing cash value policies and updating your beneficiaries post-divorce.

Our goal is to equip you with the necessary knowledge to make informed decisions during your divorce settlement.

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How does life insurance fit into divorce settlements?
Can a court order require you to have life insurance?
How do you buy life insurance after a divorce?
Are life insurance cash values a marital asset?
How do you name beneficiaries when divorcing?
FAQ: Life Insurance and Divorce

Life Insurance and Divorce Settlements

Are you going through a divorce? You’re in good company, with over 750,000 divorces occurring annually in the United States.

During these proceedings, attorneys evaluate financial responsibilities, shared assets, and overall net worth.

Amidst this emotional rollercoaster, it’s necessary to consider how life insurance can offer financial security for both parties involved should unexpected events arise.

Depending on your divorce settlement, you may need to keep your existing policy active or acquire a new one to ensure your dependents are financially protected.

According to Money, if you rely on your ex-spouse for financial support in the future, they should be required to carry coverage as part of your divorce agreement and name you as a beneficiary.

divorce life insurance child beneficiary

Why life insurance is included in a divorce agreement

Incorporating life insurance into a divorce settlement is needed to safeguard alimony payments, child support commitments, and entitlements to retirement assets.

Collaborating with an insurance agent and a legal advisor before altering existing coverage or acquiring new policies is essential, ensuring they fulfill your financial obligations effectively.

Alimony: It is common for courts to require the ex-spouse responsible for paying alimony to maintain a life insurance policy as a safety net. This ensures that the alimony payments will still be received if the paying spouse passes away.
Child Support: By maintaining a policy until your children become adults, you ensure they receive financial support in case of an unexpected passing of an ex-spouse.
Retirement Funds: Life insurance can protect any pension or retirement funds that you are entitled to receive. Securing these assets with a life insurance policy safeguards you against unexpected losses.

Court-ordered Life Insurance in Divorce

If you and your spouse cannot agree on life insurance coverage during your divorce, a judge decides for you. Failing to comply with a court order to maintain life insurance can lead to further legal complications.

It is feasible for a judge to mandate changing existing coverage or purchasing new life insurance to support your ex and children in your divorce settlement.

The court may determine the amount and length of coverage and who will receive the benefits to ensure that the payer’s financial responsibilities are fulfilled in case of their death.

If there is a court-ordered requirement for one or both parties to obtain coverage, there will typically be a deadline, so taking action promptly is necessary.

For insights on handling life insurance amid divorce, including maintaining or acquiring new policies, explore this Q&A article dedicated to this topic.

Buying Divorce Life Insurance

If you are going through a divorce, you may wonder how to protect your loved ones with life insurance. That’s why we are here to help you find the best policy for your needs and budget.

Exploring new coverage options requires divorcing spouses to understand the differences between term and permanent life insurance.

Term life insurance is affordable, making it suitable for those on a tight budget. It offers fixed premiums for a specific period, typically ranging from 10 to 40 years.

The length of the term policy you choose will vary depending on factors such as the duration of alimony payments and the age of any children who need support. Many divorces opt for a 10-year or 20-year term policy to meet these obligations effectively.

If you have long-term financial goals, permanent coverage that lasts your entire lifetime and builds cash values may be more advantageous than term insurance in the long run.

Ex-spouses can choose between whole life and universal life insurance, offering the potential to accumulate cash value.

Once the court no longer requires you to maintain coverage after divorce, you can utilize the accumulated cash value for various purposes, like funding your child’s college education or providing income during retirement.

Alternatively, with universal or whole life insurance, you can continue the coverage throughout your lifetime to create a legacy for a new spouse or adult children.

Buying life insurance for a divorce decree

Get started: The life insurance application process can take 3-4 weeks. So get started as early as possible to ensure you have a policy in place by the court’s deadline.
Communicate: The details of your court-ordered life insurance policy should be coordinated with your former spouse and both lawyers, including:
- How long is the term?
- How much coverage to buy?
- Who will own the life insurance policy?
- Who will pay the insurance premiums?
Proof to the court: If you are asked to provide evidence of the policy for court, your agent can give you a copy of your policy.

Whether you need to cover alimony, child support payments, or a policy to secure your legacy, we can help you find the right coverage at the best price.

Just fill out a simple form and get instant access to hundreds of term and universal life insurance plans from many insurance companies.

Don’t let divorce stop you from securing your future. Start your search today and discover the best life insurance options for divorcees.

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Are Cash Values a Marital Asset?

When you hold a permanent life insurance policy, it’s akin to having another savings account. This is because permanent life insurance is an asset that can accumulate significant cash value over time.

If the policy’s cash value grows substantially during the marriage, it could be considered a part of the marital estate and divided much like any other asset. A marital asset includes any property acquired during the marriage, irrespective of which spouse owns or pays for it.

Should the court deem the life insurance policy part of the marital assets, it will aim to divide its value equitably between spouses. There are various strategies for splitting life insurance between ex-spouses fairly.

Cashing Out: The court may decide that liquidating the policy and dividing its cash value between spouses is most equitable. Cashing out your life insurance could trigger surrender charges or tax implications depending on specific details of your policy.
Change Ownership and Beneficiary: Another option involves transferring ownership and beneficiary rights of the policy from one spouse to another while compensating with equivalent monetary assets where necessary.
Share Policy: Couples can divide future death benefits or cash values while keeping the coverage active. This requires continuous collaboration between ex-spouses on premium payments and beneficiary choices.

Life Insurance Beneficiary Rules After Divorce

Not updating your life insurance beneficiaries after a divorce can lead to unexpected outcomes. If you die without making these adjustments, there’s a chance your ex-spouse could still receive the policy’s death benefit.

This oversight may cause conflicts among other potential heirs who might have expected to inherit the proceeds.

Most policies are revocable, allowing you to change the beneficiary anytime. The easiest way to change your beneficiary is to contact your insurance agent to redesignate your beneficiary to a new partner or perhaps your children.

For those with minor children, establishing a trust or custodian account is typically required to manage life insurance death benefits effectively.

On the flip side, you may be obligated to keep your ex as a beneficiary on your life insurance policy under the terms of your divorce agreement. Plus, it might be necessary to transfer ownership rights of the policy to them.

Reviewing and updating these beneficiary designations post-divorce is crucial to ensure that your life insurance benefits align with your current wishes.

FAQ: Life Insurance and Divorce

Does a divorce decree override a life insurance beneficiary? Whether an ex-spouse remains a beneficiary post-divorce depends on state laws. Some states automatically revoke an ex-spouse’s beneficiary status upon divorce. While in other states, the designation stays unless actively changed by the policyholder.

Should name a child a beneficiary after my divorce? Post-divorce, you might consider designating your child as the beneficiary of your life insurance. However, it’s generally not recommended to name a minor child directly since they may not be legally able to receive the death benefit until reaching 18 in some states.

Can you keep life insurance on an ex-spouse? You may be barred from holding a policy on your ex-spouse in many states due to the lack of “insurable interest.” However, maintaining a policy is allowed if you’re financially responsible for your ex-spouse through obligations such as alimony or child support payments.

What happens to existing term insurance in a divorce? In a divorce settlement, term insurance policies typically aren’t viewed as marital property. Nonetheless, a divorce decree can mandate keeping a policy to guarantee alimony or child support, designating the ex-spouse or children as beneficiaries.

How much coverage does a divorced parent need? The amount of life insurance required post-divorce hinges on your remarriage plans and if you have kids. If you want to protect minor children in the event of your death, you’ll need more coverage compared to someone whose children are already adults.