How does life insurance work during divorce?

One of the hardest parts of the divorce process can be divvying up everything you’ve built together. If you have kids or a mortgage, you probably have life insurance to sort out as well.

So what happens to your policy during a divorce? It’s important to make sure you and your children are protected financially. Here’s what you need to know about life insurance after divorce.

Is life insurance considered an asset in a divorce?

 The divorce process involves taking stock of all your financial assets and dividing them up between you. An “asset” is anything of monetary value, like cash, stocks, real estate, and even that wedding china you picked out together.

Life insurance may also be considered an asset in some cases, depending on the policy. There are two main life insurance types: term life insurance and permanent life insurance.

Term life offers flexible protection for a specific period of time. If you die while the policy is active, your loved ones receive a cash payout to use however they like. Permanent insurance is a lifelong policy that often comes with a cash value component that grows over time. Like term life, permanent plans come with a tax-free cash payout for your loved ones after you die.

Term life insurance plans have no extra cash value and are not typically considered marital assets, but permanent plans with cash value can be. If you have a permanent life insurance policy, you may need to figure out who gets what in court.

What about joint life insurance after divorce?

Some couples choose to buy life insurance jointly. The most common options are first-to-die and second-to-die.

First-to-die plans pay out after the first spouse dies in order to help the surviving partner manage bills, cover debt, and make up for lost income if needed. The remaining spouse has to get their own policy if they want to remain insured. Second-to-die or survivorship insurance kicks in after the death of both partners and is designed to cover estate taxes or help create a legacy.

These policies are typically permanent, so they may be considered a marital asset. Dividing joint life insurance can get messy during divorce proceedings, so be sure to talk to your insurance company about the specifics.

Do I need to remove my spouse as the beneficiary on my policy?

Divorce doesn’t automatically invalidate your policy. If you want to change your beneficiary to someone other than your ex-spouse, you would need to contact your life insurance company. It’s usually as simple as filling out a form.

If you owe alimony or child support, the judge may order you to keep your ex as your beneficiary. That’s why it’s important to review your policy regularly to make sure all designations are correct and updated.

Can I keep life insurance on my ex-spouse?

If you have taken out a policy on your spouse that names you as beneficiary, you should carefully review your options with your attorney.

In some instances, you may request life insurance during divorce proceedings to protect any alimony or child support payments. The court can also require you or your spouse to take out a policy as part of the spousal support agreement. It’s important that any divorce decree appropriately address what happens to existing life insurance policies when the marriage is dissolved. There are many states that may revoke beneficiary elections if the divorce decree is not clear.

Still have questions about how it all works? We’re here to help. Get in touch to speak to an agent today.

 

At eFinancial, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed and updated regularly to ensure the information is as relevant as possible.