As a rule, change NOTHING until you consult with your planners
by Chad G. Boonswang, Esq.Mr. Boonswang is a litigation lawyer based in Philadelphia, PA who graduated from the University of Pennsylvania and Villanova University Charles Widger School of Law. Mr. Boonswang founded his practice in 2002 and has recovered tens of millions of dollars on behalf of his clients from life insurance claims and catastrophic injury cases. Visit https://www.boonswanglaw.com/
As a couple, you’ve purchased life insurance as part of your comprehensive financial plan. Sadly, you and your spouse have decided to part ways. Over the years our firm has found that clients needed to be apprised of the following considerations when a divorcing couple has life insurance:
1. A Life Insurance Policy May Be a Marital Asset
Whether a life insurance policy is a marital asset depends upon whether the policy is a “Whole Life” policy or a “Term Life” policy.
Whole Life policies
Whole Life policies have cash value and are considered part of your net worth. You must list a whole life policy as a marital asset to be divided as part of the divorce proceedings. Most commonly the policy is simply cashed out and divided equally. “Universal Life” policies are similar, being a hybrid of whole life and term and often having a flexible premium option.
Term Life Policies
Term Life policies have no present cash value and therefore are not marital assets. However, such a policy may figure otherwise in your divorce. The Court may order you to maintain life insurance if you are a child support or alimony obligor, or, if you are the custodial parent you may wish to maintain life insurance for yourself for the benefit of your children.
2. Changing the Beneficiary of My Life Insurance Policy After Divorce
You don’t need to change the beneficiary of your policy following divorce… but you might want to. Married couples commonly list their spouse as the beneficiary, which is important where the insured is the breadwinner and the beneficiary is financially dependent upon the insured. However, after divorce one might not want their ex-spouse to receive money upon their death.
If you are ordered by the court to maintain life insurance for the benefit of guaranteeing support payments you are ordered to make to your ex spouse and your children, they must be the beneficiary or beneficiaries. However, if your life insurance policy is not part of the final divorce decree, you have the freedom to change the beneficiary to whomever you wish at any time.
3. The Family Law Judge May Order You to Maintain Life Insurance
As mentioned previously, it is common for the court to order the party paying child support and/or alimony (called the “obligor”) to maintain life insurance as part of the final divorce decree. This serves to protect that income stream for the custodial parent and the children.
Occasionally the insured spouse stops paying life insurance premiums. In this case the policy can lapse without the ex-spouse/beneficiary or the Court being aware. This situation can be avoided in one of three ways:
- Send the insurance company the divorce decree with instructions to notify the beneficiary if there is a change in the policy, or if the premiums are not paid;
- The custodial parent can protect themselves and their children by being the policy owner and making the payments, in which case;
- The judge orders that the amount of the life insurance premiums be added to the alimony and/or child support as part of the final divorce decree.
4. Life Insurance Protects Any Children Born of the Marriage
If you are the custodial parent, you may need adequate life insurance on yourself following divorce to protect your children, whether your ex-spouse is consistent in making alimony and/or child support payments or not. How much, what type, and the term of the insurance depends upon the amount of your income as well as the number of children you have and their ages. There are several free life insurance calculators online, or you can contact your carrier for assistance.
It is very likely that your life insurance situation will be impacted by your divorce. If you own life insurance and are contemplating divorce, the most important thing to do is change nothing until you consult with your divorce attorney. This will ensure that your life insurance can appropriately protect your family even after divorce, just as you initially intended.