Does a Divorce Affect My Life Insurance Policy

Divorce is one of the more disruptive life events that can seriously impact all aspects of a couple’s financial lives. And, the fact that it must address the interests and needs of two, possibly, antagonistic people, it is one of the more distressing events anyone can experience. Life insurance tends to be one of the core issues of divorce settlements as it provides essential protection of the provisions in the divorce decree. If you already own a life insurance policy in the midst of a divorce, there are likely to be some requirements issued that call for changes to the policy. 

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Ownership

Typically, where divorcing partners are financially obligated to one another for child support or alimony, the divorce settlement will call for enough life insurance to fully cover the obligation in the event of a premature death.  In some cases, especially, where the relationship is antagonistic, the decree may call for a cross-ownership of policies where one partner owns and pay for the policy on the life of the other in order to prevent the lapsing of policies due to non-payment.  If this is case, there would either need to be transference of ownership or the purchase of a new policy.  If this isn’t a requirement, you can simply continue to own your own policy.

Life Insurance Face Amount

The amount of life insurance specified in the divorce settlement is typically based on the actual amount of financial obligations.  All support payments and on-going obligations are included as part of the calculation to determine how much life insurance needs to be in place.  If it is determined that the face amount requirement set forth in the divorce settlement is more than your current face amount, you will need to purchase additional insurance, or, if possible, increase the face amount of your existing policy.

Beneficiaries

The structure of your life insurance policy will be dictated by the divorce decree and you will be legally bound to maintain the life insurance policy as required.  This includes the naming of beneficiaries.  If your spouse was your beneficiary on your policy, you probably don’t need to make any changes. However, if you had any secondary or contingent beneficiaries you may be required to change those in accordance with the decree.

Cash Values

If your policy has cash values, they become part of the negotiated settlement for the division of assets.  If you are unable to negotiate a settlement that can keep your cash values intact, you may be required to surrender the policy in order to access the values.  In many cases, where it is determined that the life insurance policy is necessary to protect the divorcing partner’s interests, you can trade a comparable asset that will enable you to keep the policy intact.

Summary

Divorce can be a nasty business and life insurance is almost always a part of the settlement equation.  Failure to comply with the divorce decree for the proper amount of coverage and policy structure could result in some expensive court time, so it is always best to get it right at the time of settlement. It is always advisable to consult with your attorney before making any changes to your life insurance policy to ensure that your policy will conform to the divorce decree. 

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