I consulted with national life insurance attorney Chad Boonswang, Esq. and NJ divorce attorney Katherine K. Wagner, Esq., and they came up with three issues all couples who have life insurance must be aware of if they decide to divorce.
1. Your Life Insurance Policy May Be A Marital Asset
Is your life insurance policy is “Term Life” policy or a “Whole Life” policy? This will determine whether your life insurance policy is a marital asset subject to distribution as part of your property settlement agreement and divorce.
Whole Life Insurance Policies
A Whole Life policy has present cash value and so might be considered a marital asset to be distributed during the divorce proceedings.
A family law judge will look to whether the life insurance premiums were paid with jointly-owned funds in determining whether the policy is a marital asset. If a whole life policy is deemed a marital asset, divorcing couples frequently cash it out and divide the proceeds. If one party wishes to retain the policy, the amount due to their spouse can be made up with some alternative distribution of joint assets.
Term Life Insurance Policies
While a Term Life policy has no cash value and will not be considered a marital asset, such a policy may otherwise play a role in your divorce.
Insuring the Obligor’s Support Payments
If you are the obligor/payor of spousal support or child support or both, a family law judge may order you to maintain life insurance to ensure that income stream for your dependents. In that case, you will name your dependants as beneficiaries.
Providing for the Children of the Marriage
The parent having custody of the children of the marriage might want to maintain life insurance on themselves with their children as beneficiaries. The kind of insurance and how much to take out will depend on the number of children and their ages and the parent’s income. That parent might also consider an AD&D (Accidental Death and Dismemberment) life insurance policy.
In any case, life insurance on the custodial parent will provide for the children should something befall them.
2. Life Insurance Can Be Used to Insure Support Payments
As stated previously, a judge may order a child support or spousal support obligor to maintain life insurance on himself or herself to ensure the income stream for his or her dependents.
In NJ, a family law judge can order that the insurance company notify the dependent spouse if premiums are not paid or if any changes are made to the policy, in order to ensure that coverage is maintained as ordered. If an obligor fails to pay life insurance premiums under an order to do so, a family law judge might order that the dependant spouse pay the premiums and that the amount of premium payment is added to the support payment paid by the obligor.
3. Find Out Whether You Should and Can Change Your Life Insurance Beneficiary
Of course, it is common for married couples to name one another as beneficiaries on their life insurance policies. But if a couple divorces, they should change the beneficiary designation (unless prevented from doing so by court order, for support reasons). After all, no one wants their ex to benefit financially from their death.
Some states have enacted statutes that provide that divorce automatically strikes the ex-spouse as the beneficiary, and if the insured intends for the ex-spouse to remain beneficiary the insured must re-designate in writing. Contact your life insurance agent if you need to re-designate so that you get the correct forms and follow the correct procedure to effectively re-designate because failed re-designation is a frequent subject of beneficiary disputes and litigation.
If you believe you should have been the beneficiary of a life insurance policy and are not, contact a life insurance beneficiary attorney to discuss your case.
About the Author
Veronica Baxter is a legal assistant and blogger living and working in the great city of Philadelphia. Veronica plays soccer in a recreational league and is a rabid Philadelphia Union and Sky Blue fan. She is committed to social justice and volunteers at a local soup kitchen and as a roofer and framer with Habitat for Humanity. She lives in a renovated south Philly rowhome with her husband John, their two rescue poodles, Connor and Camelot, a full aquarium of African Cichlids, and several rescue cats (the number changes almost daily!).
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