A divorce is nearly always incredibly painful. Some of the arguments just feel brutal. And the wrangling over the divorce settlement can feel never ending, especially if it’s contested in court. It’s such a battle, and there’s an awful lot to think about. But one of the most important matters to deal with is one of the least anticipated: the issue of life insurance.
You may be in line to receive alimony payments as part of the divorce settlement. Or you might have children, and the settlement might require your ex-husband to pay child support. Either way, you need to be sure that if your ex passes away prior to the commitment being fulfilled, you still receive that support.
You will want to ensure that your attorney is going to push for life insurance to be included in the settlement. A properly implemented and financially adequate life insurance policy is absolutely vital security for you and your family.
Why Do I Need To Think About Life Insurance?
You may well have spent a significant portion of your life investing your time into your marriage. If the marriage dissolves, you fully deserve to be compensated. Depending on the level to which you prioritized your family life during your marriage, your earning potential may be limited. Your ex-husband will likely be seen by the courts to have a duty to maintain your revised lifestyle and to adequately support your children so there is minimal disruption to their lives.
Alimony payments and/or child support payments may well make up the vast majority of your income post divorce and be a vital lifeline in providing for your children. You will need to ensure that these resources remain should your ex-spouse pass away prior to the fulfillment of his obligations to you and/or your children. A life insurance policy covers those payments.
How To Include Life Insurance In Your Divorce Settlement
Make sure that your attorney is going to advocate for life insurance as part of your divorce settlement. You must ask for your ex-spouse to acquire a policy with adequate benefits to cover your needs. Depending on the financial implications, you may ask to be made a beneficiary and owner of that policy.
If you’re not named as an owner, then your ex-spouse could later stop making payments towards the policy. It could then be cancelled and you would never know (until it is too late). If you are named as an owner, then the insurance policy providers will keep in contact with you as well, and let you know if there are any problems.
If it cannot be agreed for you to be an owner of the policy, agree on third-party authorization meaning that you can still be kept informed as to the status of the policy if you ask.
You must also ask for your children to be named as contingent beneficiaries on the policy. This would ensure that they would become the beneficiaries of the policy should you die before your spouse.
Both parties will need the help of their financial advisors and/or attorney to decide the correct value of life insurance required and to solve any other related arguments. It’s worth remembering that an ex-spouse may not be too happy about a life insurance policy being procured on his life. It will serve as a reminder, after all, that someone could stand to benefit from his death. Careful negotiations between attorneys may be essential.
What Type of Life Insurance Should We Buy?
Ideally, your ex-spouse will buy the life insurance, but it might fall to you. Either way, you need to know which type will suit you best and then ask for it during the divorce settlement. So it’s important to understand the details and differences between types of policies. While there are several different types of life insurance, there are two that are used most frequently – permanent insurance such as whole life or universal insurance and term insurance, which is temporary.
Term life insurance guarantees a cash payout should your spouse die within a certain term. So for example, if your spouse has been ordered to pay alimony or child support for a set period, such as until the children have moved out, then the life insurance term may be set for just that period of years. If the insured person dies within that time, there is a payout to the beneficiary. If they do not die within that time period, there is no payout.
Whole life insurance and universal life insurance provides coverage with no time limit until the insured person dies, as long as premiums continue to be paid. There is a cash savings element to it as well; however, you have to be very careful withdrawing any cash from the policy as it could cause tax implications and/or make the policy expire.
What Are My Next Steps?
When facing a divorce, life insurance often needs to be a major component of the divorce settlement. Bring in reinforcements – talk to the experts! Meet with the appropriate professionals in your life, be it your financial advisor, accountant and/or divorce lawyer to determine your life insurance needs.
As a Certified Financial Planner™ professional, I can help you to understand the financial implications of your divorce, and how to make the very best of your new life going forward. Reach out, schedule an appointment, so we can discuss your concerns and determine the best way for you to get the help you need so that you can achieve the peace of mind you deserve for this next chapter of your life.
