Life Insurance After a Divorce: Everything You Need to Know

When you own life insurance and get divorced, court orders may require changes to your policy. For example, you may need to keep life insurance on an ex-spouse, list them as a beneficiary or buy a policy to cover them. If you have permanent life insurance, the settlement may require sharing part of the cash value with your ex.

If there’s no alimony or child support requirement, consider updating your beneficiary to someone other than your ex-spouse. Changes won't happen automatically. You must make all updates and ensure they comply with court-ordered life insurance agreements from the divorce.

If you're in the middle of a divorce, avoid changing your life insurance until after the divorce is finalized. As part of the divorce agreement, the judge may order you to keep coverage, buy life insurance to protect alimony or child support payments, or divide the cash value of a permanent life policy.

Your life insurance type and divorce settlement outcome will influence any changes to your policy after the divorce.

Navigating life insurance during and after a divorce requires careful planning and attention to legal obligations. Whether you maintain existing policies, buy new life insurance to protect alimony and child support or divide a policy's cash value, your decisions will affect your financial security and your dependents.

Several issues can arise during a divorce, disrupting your financial planning and leading to legal challenges. These may include the following:

• Beneficiary disputes: A common issue after divorce is disagreement over who should be the life insurance beneficiary, especially when children are involved. Changes to the beneficiary often require careful consideration to ensure they comply with legal mandates and reflect the intentions of both parties.
• Policy ownership conflicts: Determining who gets to keep the life insurance after divorce or how you should divide it can become a contentious issue for joint policies.
• Missed premium payments: During divorce, it’s easy to overlook premium payments, leading to a policy lapse and loss of coverage. Managing life insurance after divorce involves staying on top of payment schedules to avoid these pitfalls.
• Overlooking cash value: In policies like whole or universal life insurance, the cash value is often forgotten or underestimated during asset division, yet it forms a vital part of life insurance and divorce settlements.
• Failure to update policies: Many people forget to update their life insurance policies post-divorce, leading to unintended beneficiaries.
• Tax implications: If you cash out a life insurance policy with a significant cash value, the amount that exceeds your total premiums could be considered taxable income. Dividing a joint policy's cash value during a divorce may incur taxes for both parties. You may consult a tax advisor for personalized guidance.
• Legal costs: Divorce and life insurance conflicts can lead to legal battles, adding to financial strain and emotional stress.

Awareness of these common problems can help you proactively address life insurance and divorce complications, ensuring your financial strategy stays strong during and after the divorce.

What happens to your life insurance after divorce largely depends on whether you have individual or joint life insurance.

• Beneficiary changes: Review and update the beneficiary designation. If your ex-spouse is listed, consider changing it unless a court requires otherwise.
• Policy ownership: As the policy owner, you can make changes, including canceling the policy. However, if alimony or child support is involved, you may need to keep it active.
• Cash value: For policies with a cash value, like whole or universal life insurance, the cash value may be treated as a marital asset and divided during the divorce.
• Premium payments: Ensure timely payments, especially if the policy secures alimony or child support.
• Consult legal advice: Since life insurance may be part of divorce settlements, consult your attorney to understand your legal obligations and rights.

• Separation into two policies: Some insurers allow splitting joint policies after divorce. This process is often the cleanest way to separate life insurance during a divorce.
• Transfer of ownership: After divorce, one spouse can take over the joint life insurance policy, becoming the sole owner and payer of premiums. The cash value, if any, would then belong to the owning spouse.
• Cash out the policy: If both parties agree, the policy can be surrendered for its cash value, which can then be divided as agreed upon or ordered by the court.
• Maintain the policy: In some cases, especially where children are involved, both parties may decide to keep the joint policy active. This option requires a clear agreement on premium payments and beneficiary arrangements.
• Legal consultation: Joint policies often involve more legal intricacies. Consult your attorney to understand the legal implications of any joint life insurance policy changes.

Understanding these nuances is key to making informed decisions during a transitional life phase and ensuring your life insurance after divorce aligns with your changing circumstances.

In divorce proceedings, a judge might require life insurance as part of the financial support, alongside alimony and child support. If mandated, you must secure a policy by a set deadline. Keep these key points in mind:

• Start the application early: The life insurance application process can take up to six weeks, longer if more information is needed. Start six months before the deadline to account for unexpected issues and avoid delays.
• Coordinate details early: Discuss the policy details with your ex-spouse and legal representatives. Finalize the term, coverage amount, policy ownership and premium payment responsibilities. You can either designate your ex-spouse as the owner and beneficiary or retain ownership while naming them as the life insurance beneficiary after divorce.
• Provide proof of coverage: You may need to submit proof of your life insurance policy to the court. This could be a copy of your signed application or a payment receipt from your broker or insurance company.

Navigating life insurance during divorce requires careful planning and working with legal advisors to ensure compliance with all court orders.

Understanding how to manage divorce and life insurance is critical to ensuring that your financial strategies adapt to your new circumstances.

You can remove your ex-spouse as a beneficiary of your life insurance policy, but it depends on the terms of your divorce agreement. For example, a divorce decree may require both spouses to keep life insurance for the ex-spouse to care for minor children in case of a parent's death.

Whether you can remove your ex-spouse as a beneficiary depends on the type of beneficiary. You can change a revocable beneficiary without the beneficiary's consent. For example, you might name a parent or sibling as a beneficiary while single, then change it to your spouse or child after marriage.

If you have an irrevocable beneficiary, the life insurance company will require consent from the current beneficiary before making the change. Parents often name their children or a trust as irrevocable beneficiaries. If your ex-spouse is an irrevocable beneficiary, they must give permission for the change.

If your divorce decree includes terms that require you to maintain a life insurance policy that covers both spouses, you must comply with those terms even after divorce.

Understanding these situations clarifies when life insurance on an ex-spouse can be beneficial and essential for financial stability after divorce.

Navigating life insurance beneficiary rules after divorce requires careful attention to ensure your policy reflects your current wishes and legal requirements. After a divorce, it's common to reassess whom you want to benefit from your life insurance. Here's what you need to do:

• Update beneficiary designations: Review and update your beneficiaries once your divorce is finalized, especially if your ex-spouse is listed. Failing to update could result in your ex-spouse receiving the death benefit, which might not align with your intentions.
• Understand legal restrictions: Some divorce decrees require you to keep your ex-spouse as a beneficiary, especially if there are children or ongoing financial obligations like alimony or child support. These requirements protect the financial future of dependents.
• Consult with advisors: Legal and financial advisors can help ensure you comply with your divorce decree and state laws. They can guide you in making informed decisions about beneficiary designations.

Updating your life insurance beneficiaries after divorce is crucial for managing your financial affairs. Following these steps ensures your life insurance benefits are directed according to your wishes and legal obligations.

The life insurance coverage a divorced parent needs depends on their situation. Start by calculating how many years you'll pay child support. Subtract your youngest child's current age from the age they’ll be when support ends. Then, calculate total annual payments for alimony and child support, adding any extras like education costs. Multiply that total by the number of years you'll provide support. This will give you an idea of how much life insurance you might need.

Also, consider other debts you may want to cover, like car payments, student loans, your child's college expenses or a mortgage. If you want to cover more than support payments, consider how you'd like your death benefit divided. Designate multiple primary beneficiaries if you don’t want a single beneficiary to get the entire sum. Including a contingent beneficiary in case the primary beneficiary can’t be located or dies before you is also a good idea.

This rule of thumb is helpful because it covers your income until your youngest child becomes financially independent. If you choose a term life insurance policy that lasts until they turn 18, it serves its purpose by either providing a death benefit if you pass away before they turn 18 or expiring if you live past that point.

For example, if your annual income is $65,000 and your youngest child is three years old, you'll need to cover at least 15 years of income. Using the formula, the minimum recommended coverage would be $975,000 for a 15-year term life insurance policy. This ensures your ex-spouse can afford to care for your children without financial strain if you pass away.

Life insurance is an important consideration during a divorce. Answers to these common questions about divorce life insurance can help you decide what's best for your situation.