Life Insurance And Divorce: What If My Ex Won't Cooperate?

Divorce is a difficult process that involves untangling shared assets and financial obligations. Life insurance is an important consideration during this process, especially if there are children involved. While it may be tempting to cancel or cash out existing policies, keeping them in place can provide financial protection for your ex-spouse and children in the event of your death.

The treatment of life insurance during divorce varies depending on the type of policy and the specifics of the divorce settlement. Permanent life insurance policies, such as whole or universal life insurance, often accumulate a cash value that is considered a marital asset and may need to be divided. On the other hand, term life insurance policies typically do not have a cash value component and are usually shielded from the divorce process.

It is essential to review and update your life insurance policy after a divorce. This may include changing beneficiaries, adjusting coverage amounts, or purchasing additional policies to ensure your loved ones are adequately protected. In some cases, a court may order one or both parties to obtain life insurance as part of the divorce settlement, especially if there are financial obligations such as alimony or child support involved.

Consulting with a financial planner or insurance professional can help you navigate the complexities of life insurance during and after divorce, ensuring that you make informed decisions that protect your interests and those of your dependents.

Court-ordered life insurance

Types of Policies

The court generally leaves it to the individual to decide on the type of life insurance policy to purchase, with whole life and term life insurance being the most popular options. Whole life insurance offers permanent coverage and accumulates cash value over time, while term life insurance is less expensive but only provides coverage for a specific period.

Ownership and Beneficiaries

The ownership of the policy can be assigned to either spouse or a third party, such as a custodian or trust. The beneficiary, who receives the death benefit, is usually the ex-spouse receiving alimony or child support. However, in cases where the ex-spouse cannot be trusted to manage the funds appropriately, a trusted friend or family member can be designated as the beneficiary.

Timeline and Proof of Policy

The court typically sets a deadline by which the policy must be obtained. It is important to start the application process as early as possible, as it can take several weeks or even months to secure a policy. Proof of the policy, such as a signed application or receipt of payment, may need to be provided to the court.

Communication and Coordination

It is crucial to communicate and coordinate with your ex-spouse and respective legal teams regarding the policy details. This includes deciding on the term length, coverage amount, ownership, and payment of premiums.

Impact on Children

If there are minor children involved, special considerations need to be made. Naming a minor child as the beneficiary is generally not recommended due to legal and administrative complexities. Instead, consider establishing a trust or appointing a custodian to manage the funds in the child's best interest.

Changing beneficiaries

Most life insurance policies are revocable, meaning the policy owner may change the beneficiary at any time. The easiest way to change your beneficiary after divorce is to contact your life insurance agent so that they can verify if the policy is revocable and help you redesignate your beneficiary.

If your ex-spouse was named an irrevocable beneficiary of your policy, you will need their consent to remove them and they may need to approve any other changes to your policy.

If you have primary custody of your children, it is recommended to maintain a policy on your ex with a benefit amount high enough to replace child support or alimony at least until the last child is grown. In this case, you may want to keep your ex-spouse as the beneficiary of your policy.

If there are no children involved and you are not ordered to maintain insurance as part of spousal support, you can change the beneficiary on your policy by contacting the insurance company or your employer’s HR department for policies provided through an employer.

If your life insurance policy has a cash value, this may be considered a marital asset and subject to division by the court. In this case, you and your ex may be able to cancel the policy and split the cash value.

Cash value of the policy

If you have a cash-value life insurance policy, you and your spouse may decide to terminate the policy and then divide the cash value equally. If you have a permanent whole or universal life policy, contact the life insurance company to determine how much cash value has accumulated.

The cash value from a life insurance policy represents part of your net worth as a couple. The most equitable thing to do is to list the life insurance policy, including its cash value, among the marital assets to be divided. In a divorce where assets are divided evenly, this means each spouse leaves the marriage with half the cash value from the policy.

If you have a cash-value policy, you can elect to cash it out and split the proceeds with your ex. If you have children and one spouse takes primary custody and receives alimony or child support, maintaining a life insurance policy on the other ex-spouse can be a good idea. Should that ex-spouse die, the benefit should be high enough to replace this income until the children are no longer minors.

If you have primary custody of your children, maintain a policy on your ex with a benefit amount high enough to replace child support or alimony at least until the last child is grown. If you are a single parent, it is a good idea to take out life insurance on yourself.

If you have a permanent life insurance policy with a cash value, it will likely be considered a marital asset, which will need to be split upon divorce.

Child support and alimony

Divorce can have a significant impact on your need for life insurance. In addition to alimony, child support payments, and the division of marital assets, the court may require one or both parties to purchase a life insurance policy as part of the overall divorce settlement. This is usually done to financially protect the ex-spouse and any minor children who are financially dependent on the higher-earning spouse.

Protecting Alimony and Child Support

Protecting alimony and child support is crucial, especially for the spouse who takes primary custody of the children after the divorce. If the non-custodial parent, who is supposed to be providing child support, passes away, the income is lost, potentially leaving the custodial parent in a challenging financial situation.

To safeguard against this, the custodial parent can take out a life insurance policy on their ex-spouse with a benefit amount high enough to replace the lost child support or alimony income until the children become financially independent.

Updating Beneficiaries

In most cases, married individuals with life insurance list their spouse as the primary beneficiary. After a divorce, especially if it is contentious, you may no longer want your ex-spouse to benefit from your policy in the event of your death. Most life insurance policies are revocable, meaning you can change the beneficiary at any time by contacting your insurance agent.

However, if your ex-spouse is the irrevocable beneficiary, you will need their consent to remove them as the beneficiary or make any other changes to the policy.

Accounting for Cash Value in Permanent Policies

Some life insurance policies, such as whole life and universal life, accumulate cash value over time. This cash value is considered a financial asset and may be treated as a joint asset during divorce proceedings. It is important to determine the cash value of the policy and how it will be divided between the spouses.

You may choose to cash out the policy and divide the cash value, or you may negotiate to keep the policy, which may require keeping your ex-spouse as the beneficiary.

Court-Ordered Life Insurance

In some cases, a judge may order one or both spouses to obtain life insurance as part of the divorce settlement, especially if there are child support or alimony payments involved. The court will typically set a deadline by which the policy must be in place, and it is important to start the application process as early as possible to meet this deadline.

The specific details of the policy, such as the term, coverage amount, ownership, and premium payments, should be coordinated with your ex-spouse and respective lawyers.

Life Insurance on Your Ex-Spouse

If you are financially dependent on your ex-spouse for alimony or child support, you may want to consider taking out a life insurance policy on them to protect this income stream. However, this may not be necessary if your ex-spouse already has a policy in place that names you as the beneficiary.

Additionally, your ex-spouse's consent may be required for you to set up a policy on them, even if you are paying for it.

In summary, divorce can have significant implications for life insurance, especially when child support and alimony payments are involved. It is important to review and make necessary changes to your life insurance policy during a divorce to ensure the financial protection of yourself, your ex-spouse, and any dependent children.

Policy ownership

During a divorce, the ownership of life insurance policies can become a complex issue. Here are some key considerations regarding policy ownership in the context of divorce:

• Changing Beneficiaries: In the event of a divorce, it is common for individuals to want to remove their ex-spouse as the beneficiary of their life insurance policy. The process for doing so varies depending on the insurance provider, but it typically involves contacting the insurer and providing the necessary information. It is important to note that if there are irrevocable beneficiaries, their consent may be required to remove them from the policy.
• Marital Asset Considerations: In some cases, the cash value of a life insurance policy may be considered a marital asset and subject to division during divorce proceedings. This is particularly true for permanent life insurance policies, while term life insurance policies are often treated separately. It is important to review the specifics of your policy and consult with a financial professional to determine how your policy will be handled during the divorce.
• Court-Ordered Life Insurance: In certain situations, a court may order one or both parties in a divorce to purchase life insurance as part of the settlement, especially if there are financial dependencies such as alimony or child support involved. The type of policy and coverage amount may be left to the individual to decide, but it is important to initiate the application process as early as possible to ensure compliance with any court-mandated deadlines.
• Protecting Financial Interests: If you have financial dependencies on your ex-spouse, such as alimony or child support, it may be in your best interest to maintain a life insurance policy on them. However, this would typically require their consent, unless mandated by the court. Additionally, as the policyowner, your ex-spouse has the right to make changes to the policy, including beneficiaries, even if you are paying the premiums.
• Cross-Ownership: In some cases, couples may opt for cross-ownership of life insurance policies, where each spouse owns a policy on the other. This can ensure financial security and ease of access to policy information. However, it is important to note that the owner of the policy has the authority to make changes, and the insured person may not have control over it.

Frequently asked questions