What Happens To Your Life Insurance Policy In A Divorce?
What Happens To Your Life Insurance Policy In A Divorce
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It is almost inevitable that divorce will focus on monetary assets. Everything from a home to earnings can become subject to scrutiny. Yet surprisingly few people realize that a life insurance policy - and the potentially large benefits it can pay - can be a significant element of divorce proceedings. There are a number of ways that a policy can be impacted by a divorce.
Out-Of-Court Questions
The primary question for most divorcees is how they can remove their former spouse from their life insurance policy. In most cases, the answer is that they don't have to. It is very rare for a policy to be jointly held, or controlled by both parties together. The vast majority of individuals have individual coverage, even if they are married. Instead of being named on the actual coverage, the spouse is a beneficiary.
A beneficiary only has a claim over the insurance once death benefits are being paid. Before then, the person who pays for the actual coverage is the one who can control it. The beneficiary is whoever you determine it to be, and you can change their status whenever you like. In most cases, the husband or wife becomes the beneficiary on a life insurance policy because it's what is most convenient. The assumption is that if the policyholder were to die, the spouse would be best qualified to provide care for the children, who might be too young to care for themselves. Thus, the funds are left to the more responsible adult.
How Your Life Insurance Policy Plans May Change After Divorce
The major difference after divorce is that you might no longer trust your spouse to remain a good guardian for your children. If you intend most of the funds from your benefit to reach your children, you may feel a need to keep it out of the hands of your ex-spouse. There are many ways to accomplish this, ranging from the purchase of multiple policies with your children as beneficiaries to many other more technical structures. One of the most common methods is to have the funds deposited into a trust account, which then allows for them to be disbursed according to your wishes. Trust funds may also offer some tax advantages depending on the situation. They also bypass the need for funds to go through someone else to reach your child. The government of a trust can also be very specific, allowing you to control how the money is spent.
If you are seeking to transfer the funds directly to your children, you should get the advice of a lawyer as well as a qualified life insurance agent. Adjusting your benefits in this way might require you to adjust your will or make other changes to your estate planning. Only a lawyer can provide the best advice during this process.
How A Judge May Change Your Plans For You
When most individuals enter the divorce process, they aren't expecting to face demands beyond child support payments. Yet many judges will include a specific life insurance policy requirement as part of a settlement, requiring that one or both parties hold a specific amount of coverage and name either the ex-spouse or child as beneficiary. Although the reasons for this requirement will vary depending on the situation, it is fairly common in many courts. It does help protect children, but can be a drain on parents in some situations. If you are seeking an order of this sort, or seeking to fight one, you should retain the services of an excellent divorce attorney.
In some circumstances, you may be able to gain control over a life insurance policy held by your ex-spouse. This is a somewhat rare situation. That coverage payment may also become part of the regular child support payments. The ultimate result will vary depending on your situation.
Seek Counsel From Qualified Sources
Although there are basics which will hold true in all cases, most life insurance policy issues that arise during a divorce will require far more knowledge than a layperson would possess. You should always consult a qualified attorney and a life insurance policy specialist whenever you are facing a legal challenge. Without this assistance, you might fall victim to unknown loopholes, or simply be overwhelmed by the opposition's argument. With a team of professionals to offer advice and expert representation, you will get the best result possible.
SEEK INDEPENDENT ADVICE. All information expressed in this article is intended to be general information only. You should not rely upon this general information to make legal, tax, investment, estate, or financial planning decisions. No portion of this article is intended to nor does it provide legal, tax, investment, estate or financial planning advice. For this type of advice, you must consult an independent advisor.
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