The process of a divorce can be difficult because you are dividing your life from someone else. If you have been married for several years, the process can be frustrating because you have intertwined so much of yourself with the other person.
Something such as figuring out term life insurance after divorce can send you on a downward spiral emotionally or mentally.
Many do not fully understand the ins and out of life insurance, and if you are one of those people, you may be worried about who receives the money should something happen to you.
This article will explain who has the rights to your insurance payout, rather married or not. It will also describe how to assign beneficiaries.
Life Insurance Changes to Make During a Divorce
Dividing and moving property and assets cause pain in a divorce, but managing your life insurance policy should not. After a divorce, your, your former partner, and your children’s life insurance details will need to be adjusted because a divorce is a major life change that affects the entire family in every way.
This change should not cause you to panic immediately because the basis of your life insurance policy will determine if this process will need a little more muscle work or not.
Term life insurance and permanent (or whole) life insurance both make changing your beneficiary simple. All you have to do is call your insurance representative and request a change in beneficiaries or make the change yourself within an online portal.
You can choose to remove your ex-spouse completely, or you could simply decrease the percentage of the payout they would receive upon your death.
If they are currently listed as having the right to receive 100 percent of your insurance payout, you can drop it to any other percentage and designate the remaining amount to someone else.
For example, you can designate 25 percent to your ex-spouse, 25 percent to your new spouse, and 50 percent to your children. How you decide to assign beneficiaries and their payout percentages is completely up to you.
Changing your beneficiaries should be done immediately after you decide you want to do so because unforeseen circumstances can lead to you passing away at any time.
This process is typically as simple as picking up your phone and requesting the change with your representative, but things may get a little tricky if your life insurance has cash benefits.
Life insurance policies with cash value components can be considered a financial asset during your divorce proceeding.
Is my life insurance a marital asset?
An asset is considered as being an investment that might generate money. Mutual funds, retirement accounts, bonds, and stocks are assets, and your life insurance policy in itself is not considered an asset.
The cash value component of your policy is considered a financial or marital asset. Permanent and whole life insurance are usually the only policies that come with the option of adding a monetary supplemental component.
Therefore, if you have a term life policy, you do not have to worry about splitting the policy as an asset during your divorce. Most term life policies do not have a financial value before your death and only pay out a tax-free death benefit after you pass.
Determining how you will split the cash value to your permanent or whole life insurance should be determined between you and your ex-spouse or by the court if you two cannot decide.
Covering Your Children During (and After) Divorce
How you make sure your child support payments are being spent on your kids is the same way you make sure your life insurance payout is actually spent on your children after your death. You do both by getting it in writing, assigning an estate manager, or having a judge enforce it.
If you decide to remove your ex-spouse as a beneficiary or limit what they will receive, you should also create a will and assign an estate manager to distribute any funds that you allocate to your children.
The estate manager or your lawyer can set up an account that is specific for your children when they are at a certain age to access the funds themselves. An alternative to this is having your estate manager distribute funds to your ex-spouse monthly or yearly to be used on expenses for your children.
No matter how you decide to give this money to your children, be sure to put your last wishes in writing and have a plan in place to implement your wishes. Speaking with a professional or an experienced estate manager can help you better draft out your will and estate proceedings.
The Court Can Require Life Insurance After Divorce
Depending on how you and your ex lived while married, you may remain financially connected to them. If you were the breadwinner and covered most of the bills, you can be required to make spousal support after the divorce.
Life insurance can ensure this support continues after your death. Your ex-spouse can ask you or the judge handling your divorce proceeding to make them the beneficiary of your life insurance policy to protect their financial security after your death.
A judge may even request this if the concern is brought up during a divorce proceeding. The judge may grant your spouse the request if the policy would protect and continue alimony payments, protect retirement or pension funds, or protect child support payments that your ex-spouse will receive.
No divorce is the same, and when the concerns are presented to your judge, the final decision is ultimately up to them. When or if the judge decides a life insurance policy needs to be in place after the divorce, you can request to have control over the policy.
This allows you to manage the policy and list your former spouse as the beneficiary. Doing it this way prevents you from worrying about missed premium payments.
The most important thing to remember when separating from your spouse is that a divorce does not automatically change your life insurance policy. If you do not remove your former spouse as a beneficiary, they can receive your life insurance payout after your death.
Imani Francies writes and researches for the life insurance comparison site, QuickQuote.com.